The top 10 states for small business lending in 2019

Published

Location, location, location. Where you start your small business matters, especially when you need capital. Some states boast better loan approval rates and sizes, as well as economic growth, infrastructure, and quality of life. However, while a state might have larger average loan sizes, it may also have higher taxes and property demand. It’s a lot to analyze, leaving most entrepreneurs feeling clueless when it comes to choosing a birthplace for their business.

The complexity of the small business lending landscape makes it difficult for an apples-to-apples comparison, but don’t despair. Lendio just released their data-backed annual report of the top 10 states for small business lending, and it’ll make your decision-making process delightfully simple. In this article, we’re going to unveil the best states for small business lending and what sets the top five apart from the rest. Can you guess which state takes first place?

 

1. California, the Golden State

Of course, California claims the top spot. Are you surprised? The Golden State comes in at No. 1 for the second year in a row—and for good reason. If it were a country, its $2.9 trillion economy would be in the top five in the world.

Woah. Let that soak in for a minute.

While many tech giants call California home, more than 3.9 million small businesses do too, employing more than 7 million people. But not everything is sunshine and rainbows for small businesses in the Golden State. Complicated tax codes, a high cost of living, and piles of red tape are just a few of the unique barriers business owners face.

 

2. Utah, the Beehive State

For the fourth year in a row, Utah claims a high ranking in the top 10 states for small business lending. Recent economic growth has been explosive with the state, seeing 17,000 new small businesses over the last three years—that’s more than 15 SMBs added every day!

The booming Silicon Slopes is providing startups an environment to survive and thrive with prosperous residents like Qualtrics, Ancestry, Vivint, Domo, and Adobe. Unfortunately, infrastructure along the Wasatch Front is struggling to keep pace with the surging economy, leading to difficulties for business owners. On the bright side, local leaders are aware and focused on solving the issues so the Beehive State can maintain its impressive momentum.

 

3. Washington, the Evergreen State

Coming in at No. 3, Washington ranks on the list of top 10 states for small business lending for the fourth year running. Washington was loan-friendly before, but things keep getting better and better for capital-seeking business owners. Loan amounts in the Evergreen State got greener last year, with a 20% increase in loan dollars funded. And while SMBs are enjoying relatively easy access to loans, venture capitalists are hungry to support the sprawling startup ecosystem—the state ranks fourth in terms of nationwide VC investment.

A lot of money is being pumped into Washington businesses, which likely contributes to the state being the only one on Lendio’s top 10 list where small businesses employ over 50% of the working population. If all you’re seeing is green, you’re not alone. The Evergreen State’s rising popularity for SMBs is prompting an increase in real estate costs and compensation expectations, so be on the lookout when doing financial estimates.

 

4. Texas, the Lone Star State

Bigger loans. Bigger approval rates. Bigger opportunities for startups. Everything is bigger in Texas, and it looks like the state is trying to make that stereotype especially true for small businesses. The number of local business owners receiving loan approvals increased by 37.5% year-over-year, while the number of loan dollars funded increased by 35%.

While bigger is usually better, a few of Texas’ tinier small business peculiarities make it ripe for entrepreneurs. A lower cost of living, nominal income tax, and minimal regulation prime the Lone Star State for business growth. In terms of number of SMBs, Texas comes in second on Lendio’s top 10 list with 2.6 million.

Things are looking bright for businesses in Texas, except for the lack of a skilled workforce. For years, Texas has ranked poorly for education, making it difficult for small businesses to find qualified candidates close to home.

 

5. New Jersey, the Garden State

Despite being one of the nation’s smallest states, the Garden State packs a colossal punch when it comes to supporting small businesses financially. While New Jersey is only 1/35th the size of Texas, its average loan amounts are much bigger. From 2018 to 2019, total loan volume increased by 54%, bringing the average loan size per borrower up to $48,426—the highest of the top 10 states.

New Jersey’s high population density (and proximity to hot spots like New York City and Philadelphia) makes it opportune for small businesses seeking robust clientele. But large populations also jack up property demand and cost of living, making it quite costly to start and grow a business.

 

The final five states on Lendio’s top 10 list:

  1. Arizona
  2. Florida
  3. Colorado
  4. Massachusetts
  5. Connecticut

Though banks approved more business loans in 2018, business owners still struggled to secure necessary financing. Fortunately, banks aren’t the only option for money-hungry entrepreneurs. In 2018, 32% of small business loan applicants chose an online lending platform, an increase from 24% in 2017 and 19% in 2016.

As evidenced by this list, location should be a huge consideration when it comes to choosing where to build your business, but location isn’t everything. One of the most common reasons businesses fail is due to a lack of capital, but online lending is on a mission to make securing business loans easier than ever. Whereas your local bank usually offers just a few loan options, online lending marketplaces have several choices available.

So whether you’re relocating to a more SMB-friendly state or building from where you are, there’s never been a better time or country to kick off your American Dream.


Jesse Sumrak is a social media manager for SendGrid, a leading digital communication platform. He’s created and managed content for startups, growth-stage companies, and publicly traded businesses. Jesse has spent almost a decade writing about small business and entrepreneurship topics, having built and sold his own post-apocalyptic fitness, bootstrapped startup. When he’s not dabbling in digital marketing, you’ll find him ultrarunning in the Rocky Mountains of Colorado. Jesse studied public relations at Brigham Young University.