The United States is home to 30.2 million small businesses. From restaurant owners and local plumbers to tech-startups and online retailers, the diversity of businesses is vast. While the variety of businesses is impressive, the economic importance of small businesses is even more so.

Small businesses employ 47.5% of the nation’s employees and consistently create more jobs annually than larger, private firms.

Small businesses drive the U.S economy, but selecting a city to do business can be a challenge. A small business has to consider many factors including state taxes, real estate costs, labor force, population growth, consumer incomes, commercial leasing prices, foot traffic – the list goes on and on. 

To help budding entrepreneurs weigh their options, we’ve created a list of the best cities for small businesses. Taking into account many of the factors listed above, we will reveal a list of the best cities for small businesses. In some cases, the cities might include a surrounding area or county. 

The Top 5 Best Cities for Small Businesses

When it comes to doing business, small businesses tend to thrive in these five cities:

1. Appleton, WI

Appleton, Wisconsin is ranked as the best city for small businesses. This city, just south of Green Bay, has a growing population of about 75,000 people. Combine that with a low cost of living, steady income rates, low unemployment, and a good housing selection, and it’s easy to see why businesses are thriving in this city.

Commercial construction in the area is booming, with the highest rates the city has seen in more than a decade, according to the Appleton Growth Report.

2. Fargo, ND

In the race for best cities for small businesses, Fargo, North Dakota comes in a close second. Just a fraction of a point separates it from Appleton, WI.

In this case, Fargo, ND also includes a stretch of land that reaches into its Minnesota borders.

The area is experiencing growth both residentially and commercially. The midwestern city of 245,000 residents grew by 3,000+ people in 2017 and is currently experiencing a real estate boom. Home values have climbed 74% between 2012 and 2017, according to MinnPost.

The state’s economy is strong, job growth is high, and a steady stream of younger people are settling into the state, all of which make for an excellent business climate.

3. Midland, TX

Located in the Western part of Texas, Midland was put on the map as an oil town. In recent years, the city has diversified its businesses and drawn entrepreneurs to its borders with its tax-free plans. There are no corporate or state taxes in Texas.

The desert town of 144,000 is growing and has a healthy employment rate. Housing availability and costs do present a challenge for some, but the city is ripe for new opportunities.

4. Bismarck, ND

Bismarck, North Dakota comes in at number four on our list. This Midwest city, which sits just three hours west of second-seated Fargo, ND, is experiencing a rise in both population and median household income, which translates to more customers and more revenue for small business owners.

In addition, the economy is strong in Bismarck. It holds the rank of top overall economic growth performer since 2000, by the US Chamber of Commerce, and offers the best entrepreneurial environment in the nation, according to the University of Nebraska-Lincoln, according to the city’s website. 

5. Rochester, MN

Sitting an hour and a half south of the Twin Cities, Rochester, Minnesota, is ranked as the fifth-best city in the nation for small businesses. While the city is often known as the home of the renowned Mayo Clinic, the city’s business growth is generating a lot of buzz.

Known as a place with big-city amenities and a small-town feel, Rochester boasts a strong economy, a diversifying population, and a skilled labor force, according to Livability; all of which bolster the environment for small businesses.

Midwest ranks as the most business-friendly region

Out of 100 cities, 39 of the best cities for small businesses are in the Midwest. In other words, about 40% of the best cities for small businesses are in this region.

Why are entrepreneurs flocking to this area? Inc. says several reasons include:

  • Millennials are moving to the Midwest to work for startups and emerging tech companies. Madison, Wisconsin, for example, has one of the highest concentrations of software publishing and IT development jobs. In addition, the city boasts its access to venture capital, according to Inc.
  • The region has a relatively low cost of living. Research shows Midwest residents save an average of $3,098 on rent and $4,454 on mortgage costs annually, compared to the rest of the U.S., according to Yahoo! Finance.
  • The midwest has an educated labor force. The number of people in the workforce with a high school degree or an associate’s degree surpasses the nation’s averages by 9.3%, according to StatisticalAtlas.
  • Many midwestern states have enacted business-friendly laws that minimize taxes, ease zoning regulations, or reduce costs, like offering affordable health insurance plans for small companies. 

Wisconsin has the most enticing cities for small businesses

Nine of the cities on our list are in Wisconsin. What does The Badger State have going for it? A strong state economy and a growing population are among the reasons, but the state also offers a lot of support to small businesses by way of development centers.

What makes a small city great for business?

More specifically, what attributes do the small cities on our list share in common? While cities in the Northeastern, Southern California and Bay Area regions have a reputation as economic powerhouses and centers of business in many industries, they are conspicuously absent here. This is likely due to larger cities in these areas swallowing up most of the business, but high prices in coastal cities also play a role. 

Small cities in the central-western and midwestern states fared the best in the ranking. Despite being some of the most sparsely populated states in the country, aka “flyover states”, they account for over a quarter of the top 20 best small cities for business. Cities in these states are bolstered by low unemployment and high job creation numbers, and this data is indicative of one shift in industry in the United States, away from the former manufacturing hubs of the Mid-Atlantic to western states currently in the midst of an oil boom.

Overall, the ranking presents some surprising findings that ought to have you reconsider your notions of where businesses thrive in the U.S.

Wrap up

Starting a small business has always been part of the American Dream, but it’s not an easy endeavor. Small business owners work a lot of hours, juggle many tasks, and risk a lot to become successful. To give entrepreneurs the best chance possible, it’s important to find the right location to set up shop. While the Midwest is an optimum area, there are cities in every region that are great for small businesses. The rankings above can provide some guidance for owners looking to start, relocate, or expand a business.

Wondering where your city lands on the list? Here’s the full list of cities that offer the best climate for small businesses.

Full ranking, Best Small Cities for Business, 2020

RankCityState
1AppletonWI
2FargoND
3MidlandTX
4BismarckND
5RochesterMN
6Burlington-South BurlingtonVT
7Iowa CityIA
8St. CloudMN
9CharlottesvilleVA
10Bend-RedmondOR
11WausauWI
12Eau ClaireWI
13Mankato-North MankatoMN
14Barnstable TownMA
15ColumbiaMO
16BillingsMT
17La Crosse-OnalaskaWI
18Oshkosh-NeenahWI
19SpringfieldIL
20Elkhart-GoshenIN
21Jefferson CityMO
22Sioux CityIA
23Rapid CitySD
24MissoulaMT
25CasperWY
26SheboyganWI
27WinchesterVA
28LoganUT
29TopekaKS
30Champaign-UrbanaIL
31BellinghamWA
32GainesvilleGA
33Waterloo-Cedar FallsIA
34RacineWI
35OdessaTX
36Lake CharlesLA
37Fond du LacWI
38Grand ForksND
39Carson CityNV
40TylerTX
41DubuqueIA
42Bowling GreenKY
43St. GeorgeUT
44LawrenceKS
45Janesville-BeloitWI
46Coeur d’AleneID
47TuscaloosaAL
48Mount Vernon-AnacortesWA
49KingstonNY
50LongviewTX
51ColumbusIN
52MedfordOR
53PittsfieldMA
54Warner RobinsGA
55LimaOH
56CheyenneWY
57NapaCA
58MonroeMI
59JoplinMO
60Athens-Clarke CountyGA
61Idaho FallsID
62Auburn-OpelikaAL
63Elizabethtown-Fort KnoxKY
64BloomingtonIN
65WenatcheeWA
66Panama CityFL
67Niles-Benton HarborMI
68AmesIA
69State CollegePA
70SaginawMI
71FlagstaffAZ
72OwensboroKY
73Johnson CityTN
74BurlingtonNC
75HarrisonburgVA
76DoverDE
77AltoonaPA
78BinghamtonNY
79WheelingWV
80MonroeLA
81KokomoIN
82DecaturAL
83FairbanksAK
84AbileneTX
85Florence-Muscle ShoalsAL
86Lewiston-AuburnME
87CharlestonWV
88BangorME
89JacksonTN
90Santa FeNM
91Blacksburg-Christiansburg-RadfordVA
92Terre HauteIN
93Great FallsMT
94ManhattanKS
95ChicoCA
96Glens FallsNY
97Cape GirardeauMO
98MuskegonMI
99BrunswickGA
100Grand JunctionCO
101GreenvilleNC
102LebanonPA
103St. JosephMO
104Wichita FallsTX
105VictoriaTX
106San AngeloTX
107KankakeeIL
108FlorenceSC
109Houma-ThibodauxLA
110Macon-Bibb CountyGA
111Sherman-DenisonTX
112ValdostaGA
113DecaturIL
114LongviewWA
115DaltonGA
116WilliamsportPA
117JohnstownPA
118IthacaNY
119LewistonID
120Rocky MountNC
121Battle CreekMI
122Hot SpringsAR
123CorvallisOR
124Sebastian-Vero BeachFL
125GoldsboroNC
126Bay CityMI
127GadsdenAL
128DothanAL
129Parkersburg-ViennaWV
130ReddingCA
131JonesboroAR
132TexarkanaTX
133HattiesburgMS
134JacksonMI
135MorgantownWV
136MansfieldOH
137Michigan City-La PorteIN
138Ocean CityNJ
139Anniston-Oxford-JacksonvilleAL
140PocatelloID
141ClevelandTN
142MuncieIN
143PuebloCO
144Las CrucesNM
145FarmingtonNM
146ElmiraNY
147SpringfieldOH
148RomeGA
149MorristownTN
150Punta GordaFL
151SumterSC
152Yuba CityCA
153AlexandriaLA
154AlbanyGA
155YumaAZ
156LawtonOK
157Vineland-BridgetonNJ
158Lake Havasu City-KingmanAZ
159JacksonvilleNC
160CumberlandMD
161DanvilleIL
162HinesvilleGA
163Pine BluffAR
164Hanford-CorcoranCA
165MaderaCA
166El CentroCA

Methodology

To compile the list of the best cities for small businesses, we looked at population, college education, employment, labor force participation, unemployment rate, median income, GDP per capita, regional price parity, job creation rate, and the number of firms with 100 or fewer employees in each city.

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