COVID-19 Pandemic
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The COVID-19 pandemic has changed the development of small businesses and led many small business owners to reassess where and how they run their business during this unprecedented time, while also leading many qualified workers impacted by furloughs or layoffs to start their own business. Although many states have typically been known for their infrastructure, employment opportunities, and proximity to supply chains, the coronavirus pandemic has upended the typical barometers used for determining the best states to run a small business. Looking at the past six months, along with states that have been frequently used as small business hubs, we determined the top states for starting and running your own small business during the pandemic.

Below you’ll find a list of 26 total states: nine states that are not ideal, nine more states that are on the road to recovery, and a final list of eight states that are great incubators for small businesses during this COVID-19 crisis.

States with a Slower Recovery

Due to the pandemic, some states that would typically be great incubators for small business development are not placing on this list because of high coronavirus rates, population density, and a reliance on international trade that has ceased due to the pandemic. Although economic development could be returning to these states as soon as a vaccine is widely available or transmission rates go down, they are currently not the places to be.

Included on that list are nine states:

  • California
  • Florida
  • Hawaii
  • ​Maine
  • Nevada
  • New Hampshire
  • New Jersey
  • New York
  • Rhode Island

What we’re seeing with those states is that their main business industries have been widely hit by the coronavirus pandemic, and although the CARES Act and paycheck protection program offered some relief, it is going to be some time for the economy there for fully recovers.

For instance, New York encountered mass migration efforts when the COVID-19 pandemic initially hit the city, causing many residents to leave for other areas (including states on our list below) and leading to a significant drop in real estate and overall business development in the city. Economic development in the city has slowed drastically, and although the coronavirus case load is decreasing, economic security for businesses has not yet returned. We’re seeing a similar thing happen in California as the state faces a double threat from the pandemic and wildfires that are destroying businesses. However, both of these states have large GDPs that will surely come back strong and will be great small business incubators again in the future.

Looking to Hawaii, Nevada, Maine, and Florida, as another example, those states are experiencing dramatic slowdowns due to a reliance on the tourism business that has impacted individual economies – like Las Vegas, Nevada which provides revenue for the whole state. Although government loan programs did help aspects of the economy, the tourism and hospitality industry has suffered greatly because their industries are not able to fully restart before a vaccine is in widespread use. So the paycheck protection program (PPP) loans from the Small Business Administration (SBA) have not done much to mitigate the economic fallout.

The final three states – New Hampshire, New Jersey, and Rhode Island – were ranked in 2019 by Wallet Hub as the three worst states to start a small business. Primarily for that reason, these states are listed here as not ideal, regardless of coronavirus aid leading to a small business recovery. Additionally, Maine and New Hampshire were ranked along with New York as the worst three states in the U.S. for a business to survive a pandemic by Fit Small Business.

These states are not ideal for starting a small business during the COVID-19 pandemic as they currently do not have the infrastructure to support small business needs as they focus on pandemic relief.

States Working to Rebuild Main Street

This group of states is still working to recover from the coronavirus pandemic and they are slowly working to rebuild their economy and provide economic development to small businesses. A lot of these states are ones that either had high transmission rates and have been slowly reopening. Although they are not included in our main list of states to utilize for opening and running your small business, they are on the road to rebuilding Main Street and are valuable options as you explore expansion or are looking for a place closer to where you are currently based.

Included on this list are nine more states:

  • Connecticut
  • Idaho
  • Tennessee
  • Minnesota
  • North Dakota
  • Alabama
  • Pennsylvania
  • Colorado
  • Massachusetts

The three eastern states – Connecticut, Massachusetts, and Pennsylvania – have worked to contain the virus and also do not have a central city, like New York City or Las Vegas, which prevented them from rebounding. Although still not the best places to be for building a small business during this pandemic, they were some of the least affected states for pre-existing small businesses.

Also in the top 25th percentile for states whose small businesses were least affected by the pandemic are Colorado and Minnesota. Colorado has some of the highest average annual federal government funding for small businesses (per the state GDP) while Minnesota has the best credit conditions for small businesses. Building on that, Alabama has one of the highest business vitality rates in the country. Ranked in the top third of states to start a business during coronavirus, North Dakota was also ranked fourth by Wallet Hub in their 2019 list of best states to start a business.

Tennessee has moved up, from the 40th percentile of states for running a small business to the top third during the pandemic. This could be in large part because Tennessee is focused on financial assistance through its small business loans and providing “targeted relief” to these businesses, which are “the backbone of Tennessee’s economy.” Meanwhile, Idaho has not moved much from its perch in the top quarter of states for small businesses, and the Idaho Small Business Development Center – which, in recent week, has focused resources on working with the SBA to connect funding and resources – is likely a big part of that.

These states are on the road to recovery and focusing on economic relief and resilience for their small businesses.

South Dakota Comes in with Little Baggage

The first of our eight best states to consider when starting a small business during the coronavirus pandemic is South Dakota, which came into the pandemic with little financial baggage and the second-lowest unemployment rate in the country. The state’s low population allowed it to tackle the pandemic with very little quarantine restrictions (two other states that had low quarantine restrictions – Wyoming and Iowa – are also on our list), which also allowed businesses to thrive.

Although South Dakota has one of the smallest GDPs in the U.S., it has many industries which have thrived in the state like tourism, retail, finance, health care, and government contract – but none more so than agriculture. The state also has a valuable meat-packing industry, which goes together with the agricultural industry’s five valuable products for the state:

  • Cattle
  • Corn (maize)
  • Soybeans
  • Wheat
  • Hogs

The state is a big part of the U.S. agricultural system, and because it does not rely on international supply chains the industry kept moving during the pandemic. Although not the best place for all small businesses, many would have the opportunity to thrive here.

West Virginia is Tackling the Virus

West Virginia was the last state to report a COVID-19 case, and with their strong focus on hospitals and medical service, they have been able to keep the pandemic at bay. There has been a lot of investment in the state’s healthcare and hospital systems, with 42 counties having at least one hospital and the industry contributing $9.8 billion to the state economy. With that strong foundation, the state has only 13,196 cases, as of September 17, 2020, which places it in the bottom eight of all U.S. states – Wyoming (see below) is the other state on our top list with fewer cases.

Although the state is facing its own share of economic challenges, Fit Small Business predicts that its low number of COVID-19 cases, and its strong healthcare system, could leave a sizeable amount of federal funds to help the state recover. If that’s the case, the state is well-positioned, geographically, to bridge the north and south through business. With its proximity to Virginia and the capital, don’t discount West Virginia as the next place to start your business.

Wyoming is Great Financially

One of the most attractive parts of Wyoming to any small business owner is its low cost of living and taxes. The state has no corporate income tax, no sales tax (on energy or manufacturing equipment), and low property taxes. Overall, that’s a great place to start a business! As Fit Small Business noted, “In a nation turned upside-down by the economic ravages of the coronavirus, Wyoming might seem attractive to the business owner looking for a brand new start way out West.”

Moving out west also has other advantages: low population density and currently very low COVID-19 infection rates. The state has vast natural resources and strong economic reserves which position it will for the post-pandemic years. With people migrating from cities (like New York City, above), Wyoming and other western states could see a boon to their businesses and economic development soon.

Iowa Budgeted Well

Another state that is really strong financially now is Iowa, which entered the pandemic with $800 million in reserves and a budget surplus projected to be $400 million. Iowa’s economy is open, with social distancing policies in place, and the unemployment rate fell over the summer by 2 percent. The budget and economic stability are two of the many things the state has going for it. Like North Dakota, the state relies more on food production (this time in manufacturing versus agriculture), which was not impacted as heavily by COVID-19. Some of the plants in the state include:

  • ConAgra Brands, Inc.
  • General Mills, Inc.
  • H. J. Heinz Company
  • The Quaker Oats Company
  • Tyson Foods, Inc.

Additionally, small businesses have worked here. Des Moines, Iowa, has been called the insurance capital of the U.S. due to its low cost of doing business and educated workforce, which applies to small and large firms alike. With a low population density, similar to many western and central states, Iowa is positioning itself as a great state to start your business during this uncertain time.

Utah Has Financial Stability

Utah has one of the lowest unemployment rates in the country, and a cautious reopening of their economy at the beginning of the summer has helped a lot of people get back to work. Although there is a huge tourism sector in the state – with attractions like the Great Salt Lake and five national parks – the 2007 State New Economy Index ranked Utah as the top the state in the nation for Economic Dynamism, which is the perfect place for any small business to start.

The Economic Dynamism has fostered an economy that is entrepreneurial, innovation-based, and globalized; with its strong industry, the state is poised to be a new major player in global trade dynamics because of the COVID-19 crisis. Unlike some of the other states on this list, Utah is also seeing a growth in tech startups but with a much lower cost of living than Silicon Valley. This economic diversity provides a lot of resources to new small business owners who are looking to start their next business in the “Industry” state.

Nebraska and Its Diversified Economy

Depending on what industry your small business may fit into, Nebraska could be the perfect place to be because the state relies on a diversified economy to maintain low unemployment – even during the pandemic. The state has a large agriculture sector along with freight transport, manufacturing, telecommunications, information technology, and insurance. The state is also home to the largest train yard, publicly owned electric utilities, and entrepreneurial inventions like Kool-Aid. Omaha, Nebraska is home to multinational conglomerate Berkshire Hathaway, Inc., along with Mutual of Omaha and TD Ameritrade.

With low unemployment and a strong economy – boosted by twenty-six businesses which made Inc’s 2019 list of the fastest growing companies in the country – this is definitely a good place to build your next business. Many of the businesses concentrated here are also focused on industries that are necessary to the health and wellbeing of the country, which is a good place to be.

Ohio is Still a Business Capital

Ohio is the third-largest U.S. manufacturing state and is also a center of science and industry. The latter, in particular, can be seen in the financial and manufacturing sectors that make up 18.3 percent of Ohio’s GDP. Walmart, Inc., The Proctor & Gamble Company, The Kroger Company, and The Goodyear Tire & Rubber Company all employ a large number of Ohio residents. But the big thing to remember is how diversified the economy is and how many physical areas there are to start your next small business. All parts of the state are recognized as centers of industry:

  • Toledo is a national solar center
  • Cleveland is a hub for regenerative medicine research
  • Dayton is known for its aerospace and defense production
  • Akron is the rubber capital of the world
  • Columbus is a technological research and development hub
  • Cincinnati is a trade and commerce hub

Of course, all of these are great places to start your next small business, and Ohio also gives you the option to center your business in an already thriving industrial hub.

Texas is the Place to Be

For the last few years, Texas has been the place to start and run your small business. Known for the headquarters of large corporations such as Exxon Mobil Corp., AT&T Inc., Sysco Corp., American Airlines, Whole Foods Market, Inc., and Dell Inc., Texas has the infrastructure and business community to help run your small business. According to the U.S. Department of Commerce, Texas has the U.S.’s second-largest economy at $1.891 trillion, as of the 2nd quarter of 2020 (behind only California).

With its solid economic foundation, and a CARES Act endowment at over $10 billion, according to Fit Small Business, Texas is a great place to start a small business because it has the infrastructure to support you. Its relatively low cost of living and nice balance between city and rural (like Ohio, above) allow for a variety of industries in different parts of the state. For the past two years, CNBC and Wallet Hub have named Texas the best state to start a small business. So, the big question is what will you do and where do you want to go?

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