#United States #Business Growth #South Dakota #National Business Capital

Entrepreneurs Are Flocking to the Heartland

According to a recent report from National Business Capital, South Dakota has emerged as the number one state for starting a new business in 2026. Entrepreneurs seeking the best environment to cultivate their ideas are increasingly looking to this Midwestern state, which boasts favorable tax conditions, lower costs, and viable growth potential.

The annual report, titled "The Best States to Start a Business 2026," highlights how the 'red states' of the Midwest and South are creating ideal conditions for new ventures. With South Dakota leading the pack, the report ranks Texas and North Carolina as the second and third best states respectively. These rankings reflect a combination of factors critical to entrepreneurial success, including growth rates, survival rates of new businesses, and overall economic climate.

Key Findings

One standout finding from the report is the significant improvement in startups' survival rates. The first-year survival rate for new businesses increased to 76.8% in 2024, a notable rise from 75.9% in the previous year. However, a slight decline was noted in five-year survival rates, which dropped to 51.2%. This decline is attributed to lingering challenges faced by entrepreneurs in the wake of the COVID-19 pandemic.

The dominance of red states in the rankings is noteworthy, as all top ten states are classified as such, averaging a score of 53.9 out of 100. In contrast, their blue-state counterparts managed an average score of just 45.9. South Dakota’s score, for example, increased to 72.7, a remarkable jump of 15 points from the last report. Texas, second on the list, earned a score of 70.2, with North Carolina closely following at 69.7.

The Economics Behind the Rankings

The favorable business environment in these states can be attributed to several economic factors. Red states benefit from lower energy costs—11.8 cents per kWh compared to 18.6 cents in blue states—making operating expenses more manageable. Furthermore, these states impose lighter tax burdens on businesses, enhancing profitability and sustainability.

While red states offer lower operational costs, blue states typically excel in productivity growth and access to capital. For instance, Washington, ranked 11th, stands out for its impressive labor productivity and strong first-year business survival rates. Meanwhile, California, despite its high costs, remains a global innovation hub, sitting at 14th on the list.

Opportunities in the Midwest

The Midwest comes across as a particularly well-balanced region for entrepreneurial activity. With an overall score of 55.6, the states in this region have demonstrated steady growth, reasonable taxes, and the capacity to support durable businesses. However, a notable concern is that startup activity remains relatively low, suggesting that significant untapped potential exists.

The Pacific states may initially attract entrepreneurs with their high first-year survival rates of 78.9%, but they often face challenges when it comes to maintaining success for five years, with their five-year survival rate languishing at 50.6%.

In the words of Joe Camberato, the CEO of National Business Capital, "Starting a business is a nerve-wracking proposition. Why not start it where you have the greatest chance for success?" This perspective resonates strongly with the findings of the report, encouraging aspiring entrepreneurs to consider states like South Dakota as they embark on their journey.

The Top States for Starting a Business in 2026

1. South Dakota - Score: 72.7
2. Texas - Score: 70.2
3. North Carolina - Score: 69.7
4. Ohio - Score: 69.3
5. Indiana - Score: 62.2
6. North Dakota - Score: 61.5
7. West Virginia - Score: 61.1
8. Utah - Score: 60.6
9. Iowa - Score: 60.0
10. Michigan - Score: 58.5

In conclusion, as more entrepreneurs navigate the business landscape, South Dakota emerges as a fertile ground for new ideas, promising a brighter future for those willing to take the plunge into the heartland.