The Best States to Start a Business in 2025

A great business plan and hard work can make your business more likely to succeed anywhere, but external factors can tilt the odds in your favor or against you. So where should you set up shop?

The most fertile soil for new businesses may exist at higher elevations. NationalBusinessCapital.com’s inaugural report, “The Best States to Start A Business,” found that Colorado offers the most favorable conditions for starting a new business overall, followed closely by its neighbor Utah. These states offer strong and generally stable economies, good access to both traditional and venture capital, and relatively low taxes. The result is a competitive but highly active business creation environment.

However, they may not be the ideal climate for every new business. Small business entrepreneurs may prefer to minimize their tax burdens by putting down roots in the fast-growing states of Texas or Florida. On the other hand, tech entrepreneurs may fare better in the high-stakes knowledge economies of California or Massachusetts, which offer well-developed venture capital scenes and strong financial support for new businesses.

Those looking for more low-key pastures may want to consider the shores of the Great Lakes, where Michigan, Minnesota, Indian, and Ohio offer low-cost access to resilient, low-volatility markets.

But what if you like playing on hard mode? New England startups outside of Massachusetts face high costs without access to the deep financial resources of the Bay State. The Heartland, too, poses challenges for new business owners in the form of high business attrition and limited access to capital.

Key Findings

• Mountain States, Large Sunbelt States, And Great Lakes States Dominate The Top 10 States For New Businesses. Colorado and Utah, despite their political differences, offer Rocky Mountain business environments that balance moderate taxation with strong growth. In the Sunbelt, the behemoth states of Texas and Florida offer low tax environments, while California offers deep financial resources. The Great Lake-bordering states of Michigan, Minnesota, Indiana, and Ohio, meanwhile, demonstrate high rates of business survival with relatively low costs.
• New Businesses May Face An Uphill Battle In New England. Rhode Island, Vermont, Maine, and New Hampshire have all recently suffered from low rates of business creation and business survival. The notable exception is Massachusetts, the lone Northeastern state to make the top 10. While business creation rates and costs are all high in the Bay State, it also has high rates of business survival and beats most other states in per capita business financing.
• Mid-Atlanic States Show Strong 1st Year Businesses, Northern Businesses Endure. While they can be challenging business environments over the long term, the Mid-Atlantic states of Pennsylvania, New Jersey, and New York see over 78% of new businesses make it through their first year. At the five-year mark, you’ll generally find the hardiest businesses in states like Minnesota, Montana, Alaska, Massachusetts, South Dakota, and Illinois. Western states, excluding California, tend to have high rates of attrition at both the first and five-year marks.
• Missouri, New Jersey, and Kentucky Have Big Gaps Between First And Fifth Year Survival Rates. While businesses tend to get off to a pretty strong start in these states, business conditions rapidly deteriorate by the time a company reaches its fifth birthday. Missouri saw the largest gap between first and fifth-year survival rates at 30%. Washington, which has high rates of attrition at both marks, had the smallest gap at 10.2%
• The Mountain West And Southeast Are Starting The Most Businesses Per Capita. Wyoming, no doubt in part due to its small population, saw the highest rates of business applications, followed by Delaware, which offers LLC incorporation incentives to businesses operating in other states. Wyoming is joined by top-ranking states Colorado and Utah. The Southeast also made a strong showing in new business applications led by Florida and Georgia. New England and the northern heartland generally had the lowest rates.

The Top 10 States to Start a Business

1. Colorado

Score (out of 100): 71

Our report found that very few states do everything well when it comes to supporting business growth, but Colorado makes a pretty good attempt at it. The Centennial State is a hotbed of entrepreneurship, featuring the fifth highest rates of business applications (2,363) and venture capital ($721.38) per capita. Small business funding is also relatively easy to access, with a rate of 30.4 SBA loan approvals per 100,000 people (6th). While you won’t be able to avoid corporate (8th) or personal income taxes (20th) here, they’re still fairly low compared to most other states.

So why is Colorado’s lead so narrow? Getting a foothold in the Rockies can be challenging. Around 23.8% of new businesses don’t survive their first year (29th), with 50.1% failing before the five-year mark (34th).

2. Utah

Score: 68.1 (Tied)

Tied for second place is the Beehive State, which has some of the most explosive growth of any state in both population and business formation. Like their neighbors to the east, Utahns file business applications at a high rate (2,085, 6th). While its venture capital scene isn’t as well developed ($336.48 per capita), Utah has the third highest rate of SBA loan approvals at 36.2 per 100,000 residents. Despite its more conservative politics, corporate (15th) and personal (23rd) income taxes can take a bigger cut along the Wasatch Front.

On the other hand, Utah is slightly less cutthroat when it comes to survival rates. 76.3% of businesses survive their first year (28th), with a little over half still kicking after five (31st).

2. Michigan

Score: 68.1 (Tied)

Tied at second with Utah is Michigan. While Michigan doesn’t tend to land on the average venture capitalist’s radar ($105.61 per capita, 31st) and its entrepreneurial activity is around average (1,472 business applications per capita, 21st), those who do start a business have a pretty good chance of finding success. Your business has a 78.1% chance of making it through its first year (9th) and a 55% chance of still being around five years later (9th).

Sole proprietorships and LLCs that bring in the big bucks can actually enjoy a lower top personal income tax rate (18th) than in Colorado or Utah, though corporate taxes do run higher (22nd).

4. Texas

Score: 66.1

The Lone Star State has developed a business-friendly reputation thanks in large part to its weak regulatory environment and lack of corporate (1st, tied) or state (1st, tied) income taxes. Entrepreneurial activity in Texas is above average, with 1,635 business applications per capita (15th), though funding opportunities lag behind other large states in terms of venture capital ($218.34 per capita, 16th) and SBA loan approvals (16.6 per 100,000, 34th), Texas startups post a respectable 77.8% first-year survival rate (12th), with 52.7% (20th) still riding the bull at the five-year mark.

Beware, however, that you don’t mistake Texas’s lack of income tax for being “tax-free.” Texas is among the states that levy a gross receipts tax (48th), which can be costly, particularly for unprepared small businesses. And while there’s no LLC reporting fee (1st), high-income LLCs may have to pay a franchise tax.

5. Florida

Score: 64.3

The Sunshine State is often mentioned in the same breath as Texas as a model “business-friendly” red state, but it does things a little bit differently. Like Texas, Florida has no personal income tax (1st, tied), but it does levy a fairly significant corporate tax (19th) and no gross receipts tax. Florida processes more business applications per capita than every state save Wyoming and Delaware (2,939, 3rd) and has a strong rate of SBA loan approvals (26.5 per 100,000 residents, 10th).

That said, business conditions in Florida are as fickle as the weather, especially over the long term, with 77.4% of businesses surviving their first year (15th) and having a slightly better than a coin flip's chance of making it to year five (50.8%, 29th). Despite Miami’s attempts to lure finance and tech away from its traditional strongholds in New York and California, venture capital activity remains low for a state of Florida’s size ($130.91 per capita, 25th).

6. California

Score: 64.2

Breathing down Florida’s neck in sixth place is California, a state often held up as its polar opposite in tax and regulatory policy. Rather than cutting costs, the Golden State excels at bringing resources to bear for businesses. No state can touch California in terms of sheer volume of venture capital available ($2,093.41 per capita, 2nd), even if Massachusetts technically swings a bigger hammer relative to its size.

California’s economy is also simply enormous, with a massive GDP per capita ($99,118.49, 4th). No state is better at getting businesses through their first year (81.5% survival rate, 1st). While its SBA approval rates (22.4 per 100,000, 19th) aren’t particularly impressive, most California businesses are still around at year five (53.8%, 12th).

That said, yes, California is expensive, with some of the highest top corporate (9%, 45th) and personal income tax rates (13.3, 50th), as well as annual LLC filing costs (50th), in the country.

7. Minnesota

Score: 63

If you can survive a Minnesota winter, you can survive anything. That includes making it to year five for businesses; at 57.6%, no state boasts a higher rate. Part of that may be attributable to the North Star State’s high rate of SBA loan approvals (29.4 per 100,000, 7th) and no-fee annual LLC report filings.

While the high survival rate is impressive, it may be partially due to self-selection. A relatively small percentage of Minnesotans are starting businesses (1,195 applications per capita, 38th). And, of course, high-earning businesses do face heavy taxation in Minnesota, which has the highest corporate tax rate in the nation at 9.8%.

8. Indiana

Score: 62.7

If Indiana doesn’t necessarily excel in any of our business formation metrics, it doesn’t have too many weaknesses, either. Business survival rates are good at both year one (77%, 17th) and year five milestones (53.1%, 15th). LLC costs rank 15th overall, and corporate (13th) and personal income taxes (14th) are on the low side.

The Hoosier State’s entrepreneurial metrics aren’t quite as strong, but they’re not that bad either, with per capita business applications coming in at 1,358 (27th) and SBA approvals per 100,000 residents at 19 (25th). There aren’t too many venture capital dollars floating around ($106.38 per capita, 29th), but they are out there.

9. Massachusetts

Score: 62.1

When it comes to business creation, Massachusetts is the little California of the East. In fact, the Bay State actually commands more venture capital per capita than California ($2,093.41, 1st), thanks largely to its powerful academic infrastructure. Lower-key businesses are also well-supported with 28.6 SBA loan approvals per 100,000 residents (8th), with firms enjoying high first (80.8%, 3rd) and fifth (56.7%, 5th) survival rates.

As is the case with California, these come with some high-cost trade-offs in the form of high LLC fees, not to mention high corporate (40th) and personal income tax rates (45th).

10. Ohio

Score: 61.6

Rounding out the top 10 states in which to start a business in 2024 is the Buckeye State. While getting over the first-year hump can be a little challenging (76.2% survival rate, 29th), mature businesses tend to prosper in Ohio (53% five-year survival rate, 17th). LLC incorporation is cheap with no annual filing fees (1st, tied). Mature small businesses should have a relatively easy time accessing capital (31.4 SBA loan approvals per 100,000 people, 5th), though startups may find venture capital to be somewhat elusive ($112.85 per capita, 26th).

While taxes in Ohio are low at first glance(no corporate tax, 1st; 3.5% top personal tax rate, 16th), prospective small business owners should be aware that Ohio does have a gross receipts tax (0.26%, 44th).

The 10 Worst States to Start a Business

41. New Hampshire

Score: 45.0 (out of 100)

The Granite State’s lack of personal income tax (1st, tied) and high SBA loan approval rates (44 per 100,000 residents, 1st) don’t translate into high survivability with 25.3% (37th) of new businesses failing in the first year and 54% (49th) falling short of a five-year lifespan.

42. Wisconsin

Score: 43.1

High personal (7.7%, 43rd) and corporate taxes (7.9%, 39th) and limited venture capital (41st) and SBA funding (31st) opportunities sink the Badger State to the number 42 slot.

43. Maine

Score: 41.3

A fair number of Maine businesses make it to five years (53.2%, 14th), but they’ll face intense first-year (76% survival rate, 32nd) obstacles in the form of high corporate and personal taxes (45th and 42nd, respectively) and LLC incorporation costs.

44. New Mexico

Score: 40.7

Limited funding opportunities (32nd, venture capital; 42nd, SBA approvals) don’t help New Mexico’s business longevity issues. Just 48.1% (43rd) are still around after five years.

45. Arkansas

Score: 40.4

Low rates of per capita business formation (1,264, 32nd) and SBA funding (8.9 approvals per 100,000 residents, 50th) characterize Arkansas, with over half of businesses failing in the first five years (49.2, 39th).

46. Oregon

Score: 40.2

Oregon is one of the few states to have not only high corporate (38th) and personal taxes (47th) but a gross receipts tax (46th) as well. Businesses that make it through the first-year filter (74.4%, 40th) tend to stick around, however (52.2% five-year survival rate, 21st).

47. Vermont

Score: 40

Vermont fell within the bottom 50% of most of our business creation metrics, with high taxes and relatively low productivity. The one bright spot was business funding. On the bright side, Green Mountain State has high rates of SBA (2nd) and venture capital funding (11th) for its size.

48. West Virginia

Score: 39.3

West Virginia businesses are rugged, with 57.1% surviving to the five-year mark (4th). There aren’t too many new ones popping up, however (859 per capita, 50th), and the ones that do will have to contend with limited funding opportunities and a gross receipts tax.

49. Rhode Island

Score: 35.7

Rounding out a generally poor performance by New England is the Ocean State, where just over half of businesses fail before five years (49.8%, 36th). Rhode Island performed poorly in most of our metrics, particularly business application rates (1,060 per capita, 47th). SBA loan approval rates were fairly high, however (13th).

50. Kansas

Score: 29.4

Coming in decisively in last place is Kansas, where businesses struggle to find traction (73.8% first-year survival rate, 45th; 46.5% five-year survival rate, 48th), funding is limited (33rd venture capital; 36th SBA loan approvals), and taxes aren’t particularly low (27th corporate; 31st personal).

Complete Rankings of All 50 States

Methodology

To create our rankings, we selected eleven metrics that represent the advantages and burdens of starting a business in each state. For each metric, the lowest-scoring state was given a rank of 50, while the highest ranking was given a rank of 1. Each metric was multiplied by a select weight and aggregated together to create an overall score for each state.

Here are the eleven metrics we chose, along with the percentage used to calculate the weight of each metric:

• Year One Survival Rates (12%): This metric is the percentage of businesses that have made it to one full year of operation for the 12-month term ending in March 2023. It represents how difficult it is to get a business off the ground in the state. Data was sourced from the Bureau of Labor Statistics’s Business Employment Dynamics report.
• Year Five Survival Rates (18%): This metric is the percentage of businesses that have successfully made it to their fifth year of operation for the 60-month term ending in March 2023. It represents how difficult it is to sustain a mature business within the state. Data was sourced from the BLS’s Business Employment Dynamics report.
• GDP Per Capita (8%): This metric is the state’s GDP divided by the number of residents. It represents the state’s economic output relative to its size. A stronger GDP per capita can potentially provide more business opportunities and customers. Data was sourced from the Bureau of Economic Analysis.
• LLC Filing Costs (4%): This metric is the cost of establishing a limited liability corporation–often an advantageous form of incorporation for small businesses–within the state. Data was sourced from LLC University.
• LLC Annual Costs (6%): This metric is the annual filing (or other) fee cost for maintaining limited liability corporation status within the state. Data was sourced from LLC University.
• Top Corporate Tax Rate (7.5%): This metric is the highest rate at which C-corporation may be taxed within the state and represents the potential cost burdens larger businesses may face. Data was sourced from the Tax Foundation.
• Business Applications Per Capita (13%): This metric represents the number of business applications filed within the state in 2023 divided by the state’s population. It serves as an indicator of entrepreneurial activity within the state. Data was sourced from the US Census.
• Venture Capital Per Capita (8%): This metric represents venture capital invested in companies within the state in 2023, divided by the state’s population. It serves as an indicator of how active private equity funding is within the state relative to the state’s size. Data was sourced from NVCA.
• SBA Loan Approvals Per 100,000 Residents (11%): This metric is the number of SBA 7(a) and 504 loan approvals in each state for 2024 as of September 2024 for every 100,000 residents in the state. As SBA loans are a key source of small business funding, this metric serves as an indicator of the financial resources available to small businesses. Data was sourced from the Small Business Administration.
• Gross Receipts Tax (5%): Gross receipts tax is an alternative form of business taxation used by some states in lieu of or in addition to corporate taxes and is levied on a business’s total sales. Data was sourced from the Tax Foundation.
• Personal Income Tax (7.5%): This is the top personal income tax rate within the state. Businesses with pass-through taxation will pay personal rather than corporate taxes. Data was sourced from the Tax Foundation.