The Best & Worst States for Your Small Business in 2020

We analyzed dozens of different data points across all 50 states to determine the best and worst states for small businesses.
Small business owner with her new store

Economic conditions in recent years have allowed for small businesses to thrive in the U.S. Overall GDP growth, a boom in small-business lending, advances in technology and more have all attributed to this. However, small businesses are growing at different paces in different states. We decided to dig into various data to determine the health of small-business economies throughout the U.S.

A graphic of the 4 strongest states and their respective strengths and the 4 weakest states with their respective weaknesses.

The Best States for Small Business Owners

We formulated our score off of employees working in small businesses, small business survival rates, small business birth rates, and exports owned by small businesses. The strongest states also rank highly in owning a significant portion of the state's total exports of goods and services.

  • Montana

    • Employees Working in Small Businesses: 1
    • Small Business Survival Rate: 9
    • Small Business Birth Rate: 24
    • Exports Owned by Small Businesses: 1
  • Rhode Island

    • Employees Working in Small Businesses: 10
    • Small Business Survival Rate: 1
    • Small Business Birth Rate: 29
    • Exports Owned by Small Businesses: 3
  • Florida

    • Employees Working in Small Businesses: 49
    • Small Business Survival Rate: 43
    • Small Business Birth Rate: 11
    • Exports Owned by Small Businesses: 2
  • Maine

    • Employees Working in Small Businesses: 6
    • Small Business Survival Rate: 22
    • Small Business Birth Rate: 7
    • Exports Owned by Small Businesses: 8
  • California

    • Employees Working in Small Businesses: 25
    • Small Business Survival Rate: 21
    • Small Business Birth Rate: 5
    • Exports Owned by Small Businesses: 7

The Worst States for Small Business Owners

The following 4 states had the lowest overall scores for small businesses. It is worth noting that the following states, except for Washington, also display low productivity growth when compared to the national GDP growth.

  • Indiana

    • Employees Working in Small Businesses: 42
    • Small Business Survival Rate: 27
    • Small Business Birth Rate: 38
    • Exports Owned by Small Businesses: 45
  • Delaware

    • Employees Working in Small Businesses: 43
    • Small Business Survival Rate: 49
    • Small Business Birth Rate: 20
    • Exports Owned by Small Businesses: 49
  • Mississippi

    • Employees Working in Small Businesses: 31
    • Small Business Survival Rate: 35
    • Small Business Birth Rate: 31
    • Exports Owned by Small Businesses: 46
  • Washington

    • Employees Working in Small Businesses: 16
    • Small Business Survival Rate: 36
    • Small Business Birth Rate: 47
    • Exports Owned by Small Businesses: 33
  • Virginia

    • Employees Working in Small Businesses: 34
    • Small Business Survival Rate: 20
    • Small Business Birth Rate: 49
    • Exports Owned by Small Businesses: 24

The Rest of the States

Nationally, the average stats for employees working in small business, small business survival rate, small business rate, and exports owned by small business are 50%, 68%, 109%, and 31% respectively. Here's a full list:

RankStateEmployees Working in Small BusinessesSmall Business Survival RateSmall Business Birth RateExports Owned by Small Businesses
44Alabama48%66%107%18%
23Alaska54%68%100%40%
25Arizona44%66%115%27%
34Arkansas49%66%104%26%
5California49%68%125%45%
10Colorado49%66%129%32%
32Connecticut49%74%99%23%
49Delaware45%64%111%14%
3Florida43%66%118%69%
22Georgia44%67%116%33%
11Hawaii52%70%106%47%
12Idaho55%63%126%25%
42Illinois46%68%103%23%
50Indiana46%67%102%16%
30Iowa49%71%111%17%
19Kansas51%67%119%25%
33Kentucky45%68%108%26%
31Louisiana53%67%95%35%
4Maine58%68%120%43%
28Maryland50%67%103%29%
7Massachusetts47%73%123%38%
36Michigan50%67%107%20%
16Minnesota48%71%105%33%
48Mississippi47%66%105%16%
17Missouri47%66%127%24%
1Montana66%71%108%71%
39Nebraska47%70%97%24%
41Nevada41%66%117%14%
14New Hampshire52%66%110%40%
18New Jersey50%67%104%43%
38New Mexico56%66%106%20%
6New York51%71%104%60%
24North Carolina45%69%119%23%
29North Dakota58%74%85%36%
43Ohio46%68%100%24%
45Oklahoma52%67%99%25%
13Oregon56%67%113%34%
27Pennsylvania47%71%101%35%
2Rhode Island54%76%106%63%
37South Carolina47%66%114%16%
8South Dakota60%73%115%36%
40Tennessee43%66%117%15%
20Texas46%68%117%31%
21Utah47%66%127%17%
26Vermont60%65%109%19%
46Virginia47%68%92%29%
47Washington51%66%93%24%
35West Virginia50%71%93%35%
15Wisconsin50%71%118%28%
9Wyoming62%69%95%61%

The Top (and Bottom) States In Major Categories

Here we explain our factors a bit more in detail and give a more in depth view as to what state ranks both strongly and weakly for each scoring parameter.

Employees Working in Small Businesses

Although small businesses make up more than 99% of all businesses in the U.S., the portion of employees who actually work at small businesses is very different from state to state. For example, 41.3% of all employees in Nevada work in a small business while the rest work in larger corporations. This metric helps show the balance between small businesses and larger businesses in a given state, and how the workforce is divided in each.

RankStateRate
1Montana66%
2Wyoming62%
3Vermont59.8%
4South Dakota59.5%
4North Dakota58.1%
RankStateRate
50Nevada41.3%
49Florida42.8%
48Tennessee42.9%
47Georgia43.7%
46Arizona44.4%

Small Business Survival Rate

The small business survival rate is how many businesses opened and stayed open for a span of at least two years. This metric serves as a strong indication of how well suited a state's market is to small businesses. For example, 74.2% of small businesses opened in North Dakota stayed open for at least two years.

RankStateRate
1Rhode Island76.1%
2Connecticut74.4%
3North Dakota74.2%
4Massachusetts73.1%
5South Dakota72.7%
RankStateRate
50Idaho62.5%
49Delaware63.6%
48Vermont65.3%
47Tennessee65.5%
46Missouri65.4%

Small Business Birth Rate

The small business birth rate tracks the rate at which small business are opened vs. closed. For example, CO has a birth rate of 129%. This means 29% more small businesses were being opened versus how many were closed. One of the things this factor helps show is how low barriers of entry are in a given state.

RankStateRate
1Colorado129%
2Missouri127%
2Utah127%
3Idaho126%
4California125%
RankStateRate
49North Dakota85%
48Virginia92%
47West Virginia93%
47Washington93%
47Louisiana95%

Exports Owned by Small Businesses

Exports of goods and services by a given state are great indications as to what a state's total revenue stream looks like. We were able to analyze what percentage of those total exports by state are attributable to small businesses. For example, small businesses were responsible for 70.8% of Montana's total exports in a given year.

RankStateRate
1Montana70.8%
2Florida68.6%
3Rhode Island63.2%
4Wyoming61%
5New York59.7%
RankStateRate
49Nevada14.3%
49Delaware14.3%
48Tennessee15%
47South Carolina16.1%
46Indiana16.4%

Methodology

In order to determine the best states for small businesses in the U.S. we looked at multiple data points from various sources. We prioritized data that would most accurately indicate whether small businesses would succeed or not. Although we didn't highlight them above, we also took into account state unemployment and productivity growth. Below, we breakdown each data point to its origin.

Sources

Justin is a Sr. Research Analyst at ValuePenguin, focusing on small business lending. He was a corporate strategy associate at IBM.