Best States to Get a Business Loan

Why Should You be Concerned About Where to Take Out a Loan?

Location is crucial because of the significant variation in accessibility, average funding amount, and ease of repayment. Because of these differences, it’s essential to study which regions enjoy the most favorable financing conditions.

The decision is almost as critical as the choice of what activity your business conducts. Choosing the wrong location can lead to financial losses and even company failure.

Continue reading to find out the best states to start a business.

How to Evaluate the Best State for a Small Business Loan

As you compare locations, you can evaluate options based on several factors. Doing so will enable you to obtain the best loan for your business. Here are some aspects to consider:

• Approval rate for financing: Compare the number of small businesses in a state to the quantity that received funding during a given period. The higher the percentage of enterprises receiving loans, the better your chances of obtaining aid in that location.
• Average loan amount: Calculate the average amount small businesses borrow in the state. Higher numbers indicate more support.
• Loan repayment rate: Of the loans closed out during a given period, determine how many were paid in full by the small business versus being charged off or canceled for failure to pay. When the numbers are high, it indicates borrowers are finding it more manageable to repay loans in that state than in other locations.
• Tax law: You can study tax rankings by state for all the locations you’re considering. For example, some places are currently exempting forgiven loans from taxation due to the COVID-19 crisis. Understanding applicable laws can enable you to choose the best state to start a business for tax purposes.

As you select the loan your business needs, you’ll probably want to consider the following factors as well:

• Types of loans available
• Limits on loan amounts
• Repayment term and how it influences the total interest due
• Annual percentage rate (APR)
• Down payment
• Fees, including those for origination and underwriting, closing, late payments, check processing, and prepayment.

5 Best States for Small Business Loans 

Fit Small Business compiled a list of the best and worst states for SBA loans, based on data collected from 2010 through 2018. The results are divided by the type of analysis that led to the ranking.

By Percent of Loans Approved

In this analysis, Fit Small Business considered the percentage of small businesses receiving loans. The top five states in this ranking were:

1. Utah - 16.26% of eligible small businesses received funding
2. New Hampshire - 15.69% received a loan
3. Ohio - 15.52% of small businesses received financing
4. Rhode Island - 13.5% received funding
5. Massachusetts - 12.9% of businesses received an SBA loan

By Average Loan Amount

A second ranking, based on the average loan amount, resulted in a different list of states. The top five in terms of funding received are:

1. Georgia - $520,854
2. South Carolina - $430,650
3. Arkansas - $388,735
4. Tennessee - $387,768
5. Alaska - $378,937

By Rate of Repayment

The third analysis considered what percentage of loans were paid in full, compared with the total discharged. These numbers can help you understand how feasible it is for small businesses to repay the amount borrowed in these states. The top five in terms of repayment were:

1. Montana - 77.92%
2. North Dakota - 77.79%
3. New Hampshire - 75.37%
4. Maine - 75.21%
5. Utah - 74.63%

Considering all three rankings, New Hampshire ranked best overall. It was high in access to SBA loans, at 15.65%, and ease of repayment, with 75.37% of businesses paying in full. The average loan amount was a little lower at $107,927. 

5 Worst States for Small Business Loans

How can you determine the worst states to start a business? The Fit Small Business report cited above also included data regarding the worst states for SBA loans. The evaluation criteria were the same: percentage of businesses obtaining funding, average loan amount, and ease of repayment.

By Percent of Loans Approved

In this first ranking, the report considered the percentage of eligible small businesses that received loan approval. The five states with the lowest rates were:

1. South Carolina - 4.63% of loans approved
2. Tennessee - 4.64%
3. District of Columbia - 4.82%
4. Alabama - 5%
5. Virginia - 5.05%

By Average Loan Amount

The ranking based on the average loan amount resulted in a different list. The five states that received the lowest funding were:

1. Hawaii, averaging $73,724 per loan
2. Massachusetts, at $101,371
3. New Hampshire, with an average of $107,927
4. Vermont, at $118,158
5. Maine, with an average loan of $129,705

By Rate of Repayment

The third analysis considered what percentage of loans were paid in full, compared with the total discharged. These numbers show how challenging it is for small businesses to repay the amount borrowed. The worst five states in terms of repayment were:

1. New Jersey - 59.55% of loans were paid in full, meaning over 40% of businesses defaulted on their loans
2. District of Columbia - 60.77% paid in full
3. Alabama - 63.91% were able to pay the whole amount
4. Georgia - 64.61% paid in full
5. Nevada - 64.02% paid the whole amount

West Virginia was the worst overall for SBA loans. Only 5.23% of eligible small businesses in this state obtained funding during the years studied. The average amount financed was on the low end, at $195,686, with a low repayment rate of just over 65%.

Bottom Line

It can be challenging to find the funding your small business needs. However, the loan process is more advantageous in some states than others. By comparing the statistics from various locations, you can choose the best place to obtain funding.

As you consider the advantages and disadvantages of individual states, you can compare the following numbers:

• Approval rate for financing
• Average loan amount
• Repayment rate
• Loan-related taxes

Doing the research is worth the investment of time. By understanding what each location offers, you can choose financing from the place that’s most beneficial. You’ll be on your way to finding the loan that best meets the unique needs of your business.

See Our Additional Guides on Business Loans in Specific States