When it comes to starting a business, you will want to ensure that you’re getting the best deal. There are lots of options when it comes to locations in the US, and you might want to move to be in one of the best states to start a business in the USA.

In this article, we explore the best states to start a business. And provide reasons why they are one of the best.

What Determines the Best State?

To determine which states are the best for business, we need to first identify what is important for starting a business. There are lots of elements that are important for starting a business, for instance, access to financing, potential market, tax rates, costs, workforce, and more.

Therefore, we will look at these elements to test which states are best for business.

It is important to note that no one factor can push a state to the top. It must be a combination. For example, as we will explain below, Washington has one of the best survival rates for new businesses, at 89% with Hawaii having one of the worst survival rates across the country (75%).

But that doesn’t mean that these have the best environments for businesses. Because other elements can contribute to success or failure. And the average rate, which is 80.9%, is much closer to Hawaii’s statistics than Washington's, which suggests that most states are close to 78-82% rather than close to Washington’s statistics.

So what are the best states to start a business in?

Top State: Indiana

Best States to Start a Business

Indiana is one of the best locations for those wanting to start a business. It has a relatively low tax rate, at just 3.23%, which is considered to be a very business-friendly climate. The state also has a really good LLC formation fee, which is just $100.

Indiana also funds $13.1 million in small business funding, making it a good place to find funds for getting a business going.

The state also has one of the best business survival rates at 83.6%. There is also a low cost of living rate, which is 15% lower than the national average. And it has an average unemployment rate of 2.8%.

2nd Best State: Colorado

Best States to Start a Business

Colorado has a fantastic business environment, with a low LLC formation fee (55%) and an above-average survival rate for businesses (81.9%). Their income tax is also not bad, resting at 4.55%. However, many criticize these as being too high, which is why this state is often not given the top spot.

Colorado does have one of the lowest LLC setup fees, at just $50.

The state is well-known for outdoor adventure lovers, and it has the highest density of startups in the United States. Therefore, Colorado is well-known to entrepreneurs.

3rd Best State: North Dakota

Best States to Start a Business

North Dakota has a fairly high LLC formation fee of $135. In addition, the business survival rate of North Dakota is 78.3%, which is below the national average. So why is North Dakota such a good location for starting a business?

The state does have one of the lowest income taxes in the country, with a rate of just 2.9% and a corporate rate of just 4.31%. The state also seems to offer the highest average funding per business with $34,894 per business. This is more than 50% more than the national average in the United States. It is also three times higher than the worst-funded state, Iowa.

4th Best State: Pennsylvania

Best States to Start a Business

This state is on the list because it has great access to resources and funding for business owners. For example, the loan funding in the state is double the national average, but other states have higher but are spread among more businesses. Therefore, the average loan per business is the highest in the state.

The cost of living is one of the highest in the country, but that doesn’t mean it doesn’t have good tax rates. The income tax is just 3.07%, which is a third of New York’s income tax.

The business survival rate is also higher than national averages at 83.3%.

5th Best State: South Dakota's

Best States to Start a Business

South Dakota is one of the top states to start a business because of several factors. While it has one of the highest LLC Formation Fees, $150, it does have 0% income tax and a low corporate tax. And the state has a higher-than-average business survival rate of 81%.

The state is also known to have better access to financial assistance and resources. The average business can get $10,000 more funding than the average business, $21,273. The state also has a cost of living rate that is 5% lower than the national average.

Worst States to Start a Business

There are also states where starting a business is going to be hard. For example, those that think starting a business in New York is a great idea might want to reconsider their options. Pennsylvania is often seen as an alternative because New York has a high cost of living, a high unemployment rate, and a very poor business survival rate. So while it is known as a commercial hub, it is not the best location for new businesses.

New York has recently seen a net decrease in the number of operating businesses, with 3,550 businesses operating in the state between 2020 and 2021.

Another location to avoid is Hawaii, this is because it has a low survival rate. The state is also known to have one of the highest cost of living costs.

Those businesses where more businesses are starting than failing are Florida (29,995 more businesses), Texas (15,656 more businesses), and North Carolina (14,581 more businesses.)

Final Word: Best States to Start a Business

When it comes to the best states to start a business in the US, people might be surprised. Normally states like California, Florida, New York, and other famous states are considered the best locations. However, the top states tend to be other states that offer benefits to improve the survival rates of businesses. And those states that you want to avoid are often those which have a lot of business activity in them, like New York.

The average business revenue does not indicate whether a startup should be in the state. A business can have a high business revenue, but this could be because there are few suppliers or the costs are higher.
At least 10-20% of businesses will not survive their first year. This is because most businesses don’t have the financial backing or the consumer demand to make their business a success.
Yes, you can start a business in more than one state. However, it will incur further costs as you will need to register in both states.
A typical business owner will spend about $40,000 in their first operating year. Though some businesses start with just $5,000 in their first year.
While it has one of the best survival rates, other factors make Washington a poor state to start a business with. Washington isn’t in the top 20 states to start a business in.