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The Best and Worst States for Small Business Lending
A complete state-by-state ranking of small business loan statistics
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Financing is vital to the growth opportunities for a small business and there is a range of factors that determine whether a state is hospitable to financing a small business’s expansion. For example, one of those variables would be the raw size of the loan.
Another would be how receptive lending institutions are to those businesses that are considered small, even within the “small business” range—something that might best be measured by loan dollars given on a per-employee basis.
Finally, how strong a credit score do you need to have before obtaining a loan? It’s no secret that a lot of entrepreneurs have to push the limits of their credit to get a venture off the ground to begin with.
Requiring a high credit score to obtain further financing can have a growth-squelching effect.
The factors you consider most important will be entirely unique to your business.
If you run a tech company with ambitious plans but have a small workforce, getting a strong dollar-per-employee value on your loan might be the most important consideration. If you have strong credit and are in manufacturing, the ability to get a large sum would be your driving consideration. If you’re an entrepreneur whose business is growing but you’re still lagging from those difficult early days, lenient credit requirements will be paramount.
For our rankings of the best states to get a small business loan, we’ve incorporated all three factors and weighted them equally. The map and table below further shows where each state ranked individually for all three categories.
The study shows that there is no one-size-fits-all answer for where the most hospitable lending environment is for small businesses. No state ranks in the top 10 in all three categories. In fact only 5 hit the top 10 in 2 of the 3 categories. Of those 5, only 2—Alabama and Michigan—were in the composite top 10. And neither was the ultimate winner.
It’s not hard to understand why there is no clear winner. A bank that gives a large loan in total dollars is likely to have more stringent credit requirements. Banks that welcome the small business operating on the margins can probably only risk smaller amounts.
That’s why the best place for each business to get a loan will be unique to them and can best be understood by digging deeper into the rankings.
But every study needs a starting point.
Looking for the states with the best balance between the size of the loan, loan dollars per-employee, and more lenient credit requirements is as good a starting point as any. With that in mind, here are the 10 best and 10 worst states for small business lending.
Note: Rankings include the District of Columbia (Washington D.C.).
10 BEST states for small business lending
1. New Jersey
The Garden State is one of extremes. It has the worst tax climate for small businesses of any state but one of the best overall lending environments, ranking in the nation’s upper third in all three categories.
A #2 national ranking in dollars-per-employee is the key to North Carolina’s strong pitch for small businesses.
3. Alabama
With a classic profile of a small-business-friendly state, Alabama ranks in the top 10 for both dollars-per-employee and credit score. Only a relatively low number on total loan dollars available holds the state back.
4. Arkansas
The reverse of Alabama, Arkansas draws its strength from forking over big sums of money for small business loans.
5. Colorado
In the top half of the nation for all three categories, Colorado’s particular strength is loan dollars-per-employee.
You can get big dollar amounts here, along with strong value per each employee. Just make sure your credit is in good shape!
7. Michigan
With a profile almost identical to South Carolina’s, Michigan slips in at #10 for loan dollars, both overall and per employee. But it is 29th in credit score.
8. California
The Golden State is similar to New Jersey in that it seeks to make up for a very poor tax ranking with a friendly loan climate, which respectably ranks in all three areas.
9. Florida
The mark of consistency, Florida ranks between 13th and 19th in all three categories. This is the tightest range of any state and the only one besides New Jersey to place in the top 20 across the board.
10. Nevada
Perhaps ranking in the top 10 for small business lending is appropriate for the state that gave us Las Vegas. But easy credit is the name of the game in Nevada, making up for relatively poor value on a per-employee basis.
10 WORST states for small business lending
1. Montana
Exacting credit requirements and low overall lending sums are the downside to doing business in a state that’s very tax-friendly like Montana.
D.C. proper actually is the most generous in terms of giving out large loans, but the per-employee value is poor and the credit requirements are demanding.
3. Oregon
Oregon is yet another western state with a friendly tax structure, but very tough in financing. It ranks below the national average across the board in all key lending categories.
4. South Dakota
You can get good value per-employee for your loan in South Dakota, but you’ll need strong credit and you won’t get big dollar totals.
5. Vermont
A #20 ranking in credit score is the one bright spot in an otherwise dismal business climate for the Green Mountain State.
6. Oklahoma
We’re now entering a realm of states that are in the bottom third across the board. Oklahoma ranges between #37 and #43 on everything.
7. Kansas
Poor value on a per-employee basis is Kansas’ biggest issues when it comes to small business lending.
8. Kentucky
Kentucky’s #36 credit score ranking seems like a glint of sunlight on an otherwise dark lending landscape.
9. Wisconsin
With no individual ranking higher than 45, plus a sub-par tax climate, Wisconsin small businesses face an uphill climb.
10. New Mexico
Clocking in at 49th or 50th in all categories, New Mexico’s lending climate can be politely described as restrictive.
Where does your state rank?
STATE RANK |
LOAN AMOUNT RANK |
LOAN $$ PER EMPLOYEE RANK |
CREDIT SCORE RANK |
13 |
8 |
17 |
|
25 |
2 |
12 |
|
31 |
7 |
7 |
|
8 |
15 |
22 |
|
18 |
4 |
23 |
|
4 |
14 |
30 |
|
10 |
10 |
29 |
|
16 |
5 |
28 |
|
19 |
17 |
13 |
|
15 |
35 |
2 |
|
14 |
23 |
15 |
|
30 |
22 |
1 |
|
36 |
9 |
10 |
|
46 |
1 |
8 |
|
12 |
30 |
14 |
|
7 |
40 |
9 |
|
28 |
3 |
31 |
|
29 |
18 |
9 |
|
37 |
26 |
6 |
|
3 |
41 |
26 |
|
17 |
29 |
25 |
|
26 |
27 |
18 |
|
11 |
19 |
42 |
|
6 |
39 |
27 |
|
35 |
32 |
5 |
|
51 |
6 |
16 |
|
22 |
21 |
33 |
|
21 |
31 |
24 |
|
41 |
33 |
3 |
|
23 |
20 |
35 |
|
45 |
25 |
11 |
|
38 |
24 |
21 |
|
32 |
13 |
46 |
|
40 |
12 |
41 |
|
9 |
45 |
39 |
|
27 |
34 |
32 |
|
42 |
47 |
4 |
|
24 |
36 |
34 |
|
2 |
42 |
51 |
|
5 |
43 |
47 |
|
20 |
38 |
38 |
|
39 |
11 |
50 |
|
1 |
51 |
48 |
|
33 |
28 |
44 |
|
48 |
16 |
43 |
|
44 |
46 |
20 |
|
43 |
37 |
40 |
|
34 |
49 |
37 |
|
47 |
44 |
36 |
|
49 |
48 |
45 |
|
50 |
50 |
49 |
Simple & straightforward small business incorporation in all 50 states
While your state may not be the best in terms of lending opportunities, you may still find it more cost effective to incorporate there due to a variety of reasons. This is called “home state incorporation.”
MaxFilings assists entrepreneurs and businesses in all 50 states and the District of Columbia with incorporating and satisfying the requirements for their state. Our online incorporation system is secure and user-friendly, and provides upfront pricing for your state and corporate structure. You can begin forming your corporation and come back later to finish.
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