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Biz2Credit Identifies San Jose as 2016's Best Small Business City

Analysis Examined Markets with the Highest Annual Revenue, Credit Scores and Other Factors

Biz2Credit has identified San Jose as the Best Small Business City in America, based on a weighted average that includes annual revenue, credit score, age of business (in months), cash flow, debt-to-income ratio, and business owners' personal credit scores.

"There is so much money being made in San Jose and the rest of the Silicon Valley. Even non-tech companies are benefitting because they provide goods and services to technology companies," explained Biz2Credit CEO Rohit Arora, one of the nation's leading experts in small business finance, who oversaw the research. "The overall growth in the region's industries including construction, logistics, restaurants and hospitality, which owe their success to the booming tech sector."

San Jose shot to the top spot after scoring in the top five in average credit score, average annual revenue, and Biz2Credit's proprietary BizAnalyzer score, which takes into account local economic factors, including the cost of doing business and tax rate. In addition, GDP growth in San Jose was 6.2 percent, according to The California Legislature's Legislative Analyst's Office, a figure that far surpassed the nation's 2.4 percent GDP growth as a whole.

New York finished No. 2 in the rankings and led other cities in terms of average annual revenue.

"New York and San Jose are battling it out for supremacy in technology, while New York has the edge in sectors such as financial services and travel and tourism," Arora explained.

Despite being the nation's leading region in sales, the high fixed and variable costs of doing business in the New York metropolitan area prevented it from securing the top spot on the list.

"What prevents New York from achieving the top ranking, despite high average revenues, is the high cost of doing business, especially high rents, real estate and construction costs in Manhattan. Because it is expensive to live in the New York metro area, salaries have to be higher in order for small firms to be competitive for talent," Arora said. "Costs related to transportation -- gas prices, parking, bridge and tunnel tolls -- are high. Fees and penalties for violations (health department citations, traffic tickets, etc.) are very costly. Payroll and sales taxes are also high in New York. These cost factors can be very challenging for small business owners."

Arora believes that the eventual imposition of a $15 minimum wage also will be a burden for many small business owners, particularly ones that operate on lower margins.

Among the cities that have made the biggest improvements in a year-to-year comparison was Miami-Fort Lauderdale, FL, which ranked fourth in the Biz2Credit rankings.

"Miami is thriving because of the construction boom and its growth as a tourist destination," said Arora. Additionally, it acts as a gateway to Latin America. If relations continue to normalize with Cuba, its strategic importance will only continue to grow."

Riverside-San Bernardino, CA dropped from the top spot in 2015 to No. 6 this year.

"In the last year, water shortages and struggles in agriculture have impacted the local economy in and around Riverside. Meanwhile, EB-5 funding from China -- an immigrant investor program established by Congress to stimulate the U.S. economy -- has slowed. Under EB-5, a foreign national could invest up to $1 million in a new commercial enterprise. Many small businesses got funded through Chinese investors," Arora explained. "Revenue in Riverside is still relatively high, however. The area is still doing quite well."

For this analysis, Biz2Credit defined "small businesses" as companies having fewer than 250 employees or less than $10 million in annual revenues.

The Top 25 Cities for Small Business in 2016 are:

  1. San Jose, CA
  2. New York
  3. San Francisco-Oakland
  4. Miami-Fort Lauderdale
  5. Los Angeles
  6. Riverside-San Bernardino, CA
  7. Atlanta
  8. San Diego
  9. Chicago
  10. Seattle
  11. Portland
  12. Houston
  13. Detroit
  14. Orlando
  15. Tampa-St. Petersburg
  16. Dallas-Fort Worth
  17. Washington, DC
  18. Phoenix
  19. Denver
  20. Las Vegas
  21. Charlotte
  22. Philadelphia
  23. San Antonio
  24. Indianapolis
  25. Memphis

The Top 10 metro areas by Annual Revenue

Top 10 Metro areasAnnual Revenue
1. New York, NY $ 1,421,959
2. Riverside-San Bernardino, CA $ 1,045,820
3. San Jose, CA $ 801,064
4. Seattle, WA $ 702,693
5. Los Angeles, CA $ 612,415
6. Tampa-St. Petersburg, FL $ 606,833
7. Miami-Fort Lauderdale, FL $ 571,014
8. Chicago, IL $ 548,548
9. Washington D.C. $ 547,296
10. San Francisco-Oakland, CA $ 535,998

"New York had the highest revenue figures, which makes sense because it costs a lot of money to do business here," said Arora, whose company is located in Manhattan. "The tourism business is thriving and the tech industry is booming. New York has always been a place that inspires innovations and diversity. It attracts young, talented professionals from top schools in the U.S. and immigrants from all over the globe."

When sorted by Age of Business (in months), Philadelphia was the leader.

Top 10 Metro areasBusiness Age (Months)
1. Philadelphia, PA 36 months
2. Memphis, TN 37 months
3. Riverside-San Bernardino, CA 38 months
4. Orlando, FL 40 months
5. Charlotte, NC 42 months
6. Indianapolis, IN 43 months
7. San Antonio, TX 44 months
8. Phoenix, AZ 44 months
9. Denver, CO 44 months
10. Detroit, MI 46 months

Biz2Credit looked at 500 companies in Philadelphia that applied for loans, and nearly 70 percent (336) of applications were made by start-up companies, far higher than any other city compared in the analysis.

"The growth of new businesses is a reflection of the rejuvenation of Philadelphia, particularly around the bustling walkable Center City district," says Arora. "Center City is a hub for office and retail business, dining, arts and culture, entertainment, health care, education, hospitality and tourism. Philadelphia also benefits from its proximity to top schools, such as the University of Pennsylvania, Villanova, and Temple, which can provide entrepreneurial-minded talent."

Arora adds that the cost of living in Philadelphia, while not cheap, is still much less that the cost of living in other East Coast cities, including Boston and New York.

When sorted by Credit Score, San Jose was the leader. Rounding out the Top 10 were New York, Chicago Orlando, Miami-Fort Lauderdale, San Francisco-Oakland, San Diego, Tampa-St. Petersburg, Los Angeles and Houston.

Top 10 Metro areasCredit Score
1. San Jose, CA 644
2. New York, NY 626
3. Chicago, IL 620
4. Orlando, FL 611
5. Miami-Fort Lauderdale, FL 608
6. San Francisco-Oakland, CA 607
7. San Diego, CA 607
8. Tampa-St. Petersburg, FL 606
9. Los Angeles, CA 604
10. Houston, TX 601

"Small businesses in areas where the technology sector is booming, such as San Jose, Los Angeles, San Francisco, and New York, tend to have higher credit scores," Arora said. "There is also a correlation between higher credit scores and businesses with longer tenure. Many of the cities in the Top 10 were represented by longer operating businesses."

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