The month-long government shutdown has cost small business contractors $12 billion in losses. But which 10 states have the lowest chance of survival for small businesses?
Small business accounting experts at Tight analyzed pre-shutdown data around five-year business survival rates, corporate tax rates, and operational costs to reveal America’s worst states for small business growth that could struggle to stay afloat amid the shutdown.
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Key findings:
- Maryland ranks as the least favorable state for small business success, with a small business success score of just 54.81. Despite a 59.48% 5-year survival rate, the state’s 8.25% corporate tax rate and employee costs of nearly $82,000 annually create significant financial burdens that hamper growth.
- Massachusetts claims the second-worst spot for small business success, with office rent ($51.80 per sq. ft) and annual employee costs ($89,403) both being the highest in the nation, making it extremely difficult for entrepreneurs to maintain profitability.
- Minnesota rounds out the bottom three with a 9.8% corporate tax rate, the highest in the country, paired with $74,149 in annual employee costs, creating a challenging environment for small business sustainability.
10 worst states for small business success in the U.S.
| Rank | State | 5-Year Survival Rate (%) | Corporate Tax Rate (%) | Employee Cost (Annual $) | Office Rent ($/sq ft) | New Business Applications (%) | Business Establishments Growth (%) | Labor Force Participation (%) | Small Business Success |
| 1 | Maryland | 59.48 | 8.25 | 81,953.95 | 27.27 | -3 | +2 | 65 | 54.81 |
| 2 | Massachusetts | 63.64 | 8 | 89,403.33 | 51.8 | +21 | +1 | 66.6 | 55.68 |
| 3 | Minnesota | 61.18 | 9.8 | 74,149.32 | 23.24 | +27 | +2 | 68 | 56.11 |
| 4 | New Jersey | 62.14 | 8.63 | 82,158.48 | 30.24 | +13 | +2 | 63.9 | 56.23 |
| 5 | Illinois | 63.58 | 9.5 | 74,300.03 | 26.13 | -1 | 0 | 64.9 | 56.36 |
| 6 | Pennsylvania | 59.58 | 8.99 | 68,562.29 | 26.31 | +14 | +1 | 62 | 56.37 |
| 7 | New York | 61.84 | 6.88 | 86,798.20 | 46.09 | +15 | -1 | 61 | 57.12 |
| 8 | California | 68.14 | 8.84 | 86,012.35 | 41.64 | +18 | +7 | 62.1 | 58.44 |
| 9 | Connecticut | 61.58 | 7.5 | 81,867.83 | 25.94 | +25 | 0 | 64.9 | 59.17 |
| 10 | Rhode Island | 58.20 | 7 | 74,569.16 | 21.63 | +23 | +3 | 63.9 | 59.61 |
Note: The full methodology is available below.
“When the U.S. government shut down over a month ago, small businesses unfairly started to suffer the consequences such as frozen SBA loans, stalled contracts and shaken consumer confidence. In such a situation, even businesses that are profitable on paper can run into a crisis if they lose access to funding or payments,” said Raj Bhaskar, a small business finance expert and CEO at Tight.
“Small businesses that rely on government funding will start to face a financial crisis without the added support from the government soon and amid the long wait, they need a survival plan.”
To help small businesses minimize the fallout, Bhaskar recommends three urgent survival moves:
1. Stress-test cash flow: Small businesses should forecast their financial runway and determine exactly how long they can cover payroll, rent, and essential expenses without outside funding. This will provide a clear picture of potential gaps before they become crises. Clarity now prevents panic later and helps owners make informed decisions under pressure.
2. Find alternative funding: With Small Business Administration loans frozen, small businesses need to explore backup options like fintech lenders, community banks, or supplier-negotiated payment terms. Securing lines of credit before they’re urgently needed gives owners breathing room. Having diverse funding sources ensures stability even when federal support is unavailable.
3. Delay nonessential spending: Preserving liquidity is critical during a shutdown, which means pausing major purchases or delaying projects that aren’t essential to day-to-day operations. Cutting back now creates flexibility for future decisions. This disciplined approach can mean the difference between surviving or running short of cash.
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