Go Back Up

Top U.S. states for small business growth

Small Business • July 24, 2023 at 10:52 AM • Written by: Elizabeth Walker

According to the Small Business Administration (SBA)1, there are more than 33.2 million small businesses in the U.S. These small businesses employ more than 61 million workers or roughly 46% of the total workforce.

But growing a small business can be challenging. A limited budget, industry competition, a small staff, and increasing business costs are all potential obstacles. But few may realize that location also contributes to small business growth.

If you’re a small business owner, it’s crucial to know how your state may impact your success. This blog will show recent small business growth trends nationwide for organizations with fewer than 500 workers. We’ll also explain how small employers can use personalized health benefits to grow their company by attracting top talent.

Learn more about personalized health benefits for small businesses in our guide

The top 10 states with the most small businesses

The number of small businesses in each state varies. But some states, of course, have more than others. Unsurprisingly, the top four locations with the most small businesses are also the most populated states in the U.S., making them favorable environments.

Even so, knowing how the states rank shows you where you’ll have the most competition if you plan on starting a business.


Number of small businesses in 20222


4.2 million


3.1 million


3 million

New York

2.3 million


1.2 million


1.2 million


1.1 million



North Carolina


New Jersey


In contrast, the ten states with the least amount of small businesses are New Hampshire (138,199), Montana (129,180), West Virginia (111,614), Rhode Island (108,360), Delaware (93,686), South Dakota (90,274), Vermont (78,883), North Dakota (75,265), Alaska (74,587), and Wyoming (72,081).

The top 10 states with the highest small business loans

Not only do small employers need money to manage their regular business operations, like labor costs and business taxes, but they need enough to cover unexpected situations. Sole proprietors can receive financial assistance by applying for a small business loan.

The federal government granted more than 50,000 loans to small businesses in 2022, totaling $31.4 billion4. While the amount a state receives in business loan dollars varies, state averages range from $306K to more than $900K.

There are many financial options3 available for small businesses, and knowing which one to choose can be overwhelming. If you’re considering a small business loan, work with a financial advisor to help you through the process.


Average small business loan amount in 20224











North Carolina










In contrast, the ten states that received the least amount of small business loans are Mississippi ($422,000), Maine ($413,000), Connecticut ($399,000), Massachusetts ($391,000), West Virginia ($369,000), Delaware ($360,000), New Hampshire ($356,000), Hawaii ($334,000), Vermont ($330,000), and Ohio ($306,000).

The top 10 states with the greatest increase in new small business applications

Our business climate is changing, and individuals looking to open their own companies are rushing to fill the gaps. The pandemic allowed for new business environments, such as people selling goods from their homes, online, or providing remote services. This resulted in states receiving many new business applications from budding entrepreneurs.

According to the U.S. Chamber of Commerce5, about 14.9 million new business applications arrived between 2020 and 2022, mainly in the retail and professional services industries. Just in 2022, 5.1 million new small businesses filed applications. Of the 14.9 million applications, the U.S. Census Bureau projects 1.4 million businesses, or 9.5% of applications, to open.


Percentage increase of small business applications filed in 2022 than in 20195









South Carolina






North Carolina






In contrast, the ten states with the smallest increase in small business applications are Rhode Island (29.6%), Hawaii (27.9%), Oregon (26%), New Hampshire (25.8%), Washington (25.2%), Massachusetts (24.5%), District of Columbia (16%), North Dakota (16%), Alaska (4.2%), and Idaho (0.2%).

The top 10 states with the most small business employees

Small businesses are an essential part of the U.S. economy. No matter where you live, small businesses, meaning independent organizations with fewer than 500 employees, make up 99.9% of all American companies6.

Many small organizations have no employees due to labor costs and other reasons. But the ones that do employ 46.4% of private sector workers, making them vital to business operations throughout the country.


Number of small business employees7


7.4 million


4.9 million

New York

4.1 million


3.6 million


2.6 million


2.5 million


2.2 million


1.9 million

New Jersey

1.9 million


1.7 million

In contrast, the ten states with the fewest small business employees are West Virginia (269,473), Montana (250,680), Idaho (247,193), Rhode Island (227,699), South Dakota (208,353), North Dakota (196,770), Delaware (195,792), Vermont (157,131), Alaska (138,517), and Wyoming (132,595).

The top 10 states with the highest small business failure rate

Starting a business is challenging, but maintaining one is even more difficult. Recent data8 says that 20% of new businesses fail during the first two years, and 65% fail during the first ten years. This may not be surprising considering the risks, labor costs, and other challenges that new businesses experience.

A few key factors that may make an individual close their business—whether they chose to or had to—include having a lax business plan, insufficient money, a poor marketing strategy, insufficient demand for the product or service, expanding too quickly, labor shortages, and a poor location.

While not everything related to running a company is in your control, like the economic growth rate and business taxes, planning for these potential pitfalls can help you navigate your company through the early years and increase your chances of a good business survival rate.


Small business failure rate after five years8



District of Columbia






Rhode Island








New Hampshire




In contrast, the states with the lowest failure rates after five years are North Carolina (46.1%), Illinois (45.8%), Pennsylvania (45.8%), Montana (45.7%), Massachusetts (45%), West Virginia (45%), California (44.8%), Mississippi (44.8%), South Dakota (44.3%), and Oregon (41.6%).

How small businesses can grow their business by offering personalized benefits

If you’re a small business owner looking to grow your staff, a good way to attract a skilled workforce is with a comprehensive benefits package.

One of the most essential employee perks is a health benefit. But many small employers can’t afford a group plan or meet the participation requirements. This is especially true if your business is located or employs many workers in a state with expensive group health policies, like New York, Washington D.C., or Rhode Island.

If you live in a state with expensive group plans, you can opt for a health reimbursement arrangement (HRA) instead. With an HRA, you can reimburse your employees tax-free for qualified out-of-pocket expenses and sometimes individual health plan premiums.

You set a budget-friendly monthly allowance that your employees can’t exceed. Individual employees receive reimbursements up to their allowance amount when they submit proof that they’ve purchased an eligible healthcare item or service.

There are different types of HRAs that can meet the needs of every small business. With a stand-alone HRA, like a qualified small employer HRA (QSEHRA) or an individual coverage HRA (ICHRA), employees purchase their own individual health insurance policy, which saves you from buying a group plan.

While they have annual contribution limits, QSEHRAs are optimal for small employers because they’re only for companies with fewer than 50 full-time equivalent employees (FTEs). ICHRAs are for organizations of all sizes, have no contribution limits, and you can customize them by specific employee classes.

If you’re in a business-friendly state where group health plans are sometimes more affordable, like Arizona, Louisiana, or Alabama, you may want the familiarity of an employer-sponsored health plan. In that case, you can provide your employees with even greater coverage by offering an integrated HRA alongside your group plan.

You can use an integrated HRA to reimburse your employees enrolled in your employer-sponsored health plan for their deductibles, coinsurance, copayments, and other qualified medical expenses. Like an ICHRA, integrated HRAs have no contribution limits and have employee class customization.

HRAs don’t have minimum participation or contribution requirements, making them more flexible for small businesses. And because HRAs have no annual rate hikes, you have more room in your budget to focus on expanding your business.

You can also enhance your benefits package with employee stipends. A stipend allows you to provide lifestyle benefits and expense reimbursement for wellness, remote work, transportation, professional development, and technology expenses, among other things. You simply set an allowance for your employees and reimburse them for the expenses that matter most to them.

While most stipends are taxable, they provide a wider range of benefits for your diverse workforce.


Small business success is difficult regardless of where you live. It takes drive, dedication, risk, and a great business idea to be successful long-term. But knowing how location factors into the equation can make a difference in how you plan and executive your business growth goals.

If you’re ready to grow your staff, your benefits package must be enticing. At PeopleKeep, we help small business owners offer customizable perks that your employees will love at a budget-friendly price. Simply schedule a call with one of our personalized benefits advisors, and we’ll set you up with the right perks for your organization.

This article was originally published on March 2, 2015. It was last updated on July 21, 2023.

  1. https://advocacy.sba.gov/wp-content/uploads/2022/08/State_Profiles_2022.pdf
  2. https://www.oberlo.com/statistics/number-of-small-businesses-by-state
  3. https://www.business.org/finance/loans/best-small-business-loans/
  4. https://www.business.org/finance/loans/business-loan-amounts-by-state/#By_state
  5. https://www.uschamber.com/small-business/new-business-applications-a-state-by-state-view?state=
  6. https://advocacy.sba.gov/2023/03/07/frequently-asked-questions-about-small-business-2023/
  7. https://www.patriotsoftware.com/blog/payroll/how-many-employees-does-a-small-business-have/
  8. https://www.lendingtree.com/business/small/failure-rate/

Ready to enhance your employee benefits with PeopleKeep?

Elizabeth Walker

Elizabeth Walker is a content marketing specialist at PeopleKeep. She has worked for the company since April 2021. Elizabeth has been a writer for more than 20 years and has written several poems and short stories, in addition to publishing two children’s books in 2019 and 2021. Her background as a musician and love of the arts continues to inspire her writing and strengthens her ability to be creative.