Best and Worst Cities for New Small Businesses

So you’ve started your new business, congrats! Now let’s just hope that you’re in the prime location for your small business to thrive. Like it or not, there are more and/or less favorable cities that can directly impact the success of your business.

Based on a study conducted by LendingTree, a nationwide online lending company, there are several factors that attribute to a start-up’s success, such as the type of business and its geographical region. LendingTree pulled data from over 80,000 new small business owners all across the America, who were seeking business loans through LendingTree’s “small business loan marketplace”.

The results showed that aside from location and business type, annual revenue was an important factor to small business success, as it should be; but more importantly the percentage of businesses that were actually profitable at the time of the survey. The LendingTree study narrowed the locations down to 50 of the most densely populated metropolitan areas, and measured the success of each location through a point scoring system, where 100 points was the highest possible score and 0 was the lowest. The best location received a score of 90, while the worst city scored an 8.

So what are the best and worst cities to start a small business? Let’s take at look at cities to look into, while others should be avoided at all costs.

The Best Cities for New Small Businesses:


Small businesses are booming in California, particularly Sacramento, Los Angeles and Fresno, all of which are ranked in the top ten places to start a business.

But Sacramento ranked in at number one, with small businesses and start-ups averaging an annual revenue of $315,661, with 84.3% of their small businesses were able to net in profits.

Grand Rapids:

Coming in second place is Grand Rapids, Michigan, with an annual revenue average of $293,495. Although Grand Rapids ranked in at second place, they were actually ahead of Sacramento in profit margins, with 85.2% of their start-ups profiting; the best overall profit percentage of any city.


Portland, Oregon finished in the top 3, ranking in at third place. Although Portland’s small business profit margins were slightly lower than Sacramento at 83.2%, their small businesses averaged higher annual revenues of $317,765 and an above average score of 83.

Worst Cities to Start a Business:

If you’re in these three cities, try not to start a small business: Cincinnati, Rochester and Philadelphia.

Small businesses in Cincinnati, Ohio had an annual revenue average of $198,516, with 78.9% of small businesses seeing profit gains. Cincinnati had the worst score of every city, with a lowly score of 8.

Meanwhile Rochester, New York and Philadelphia were not too far behind, tallying in with low scores of 14 and 17.

Still not sure on which city to start your new business in? Or even what type of business you should start? Here are 7 simple questions to ask yourself before you get started:

What problem(s) are you solving by starting this business?

How much funding do you actually need?
How will you attract customers?
Will you have Co-Founders/Co-Owners?
Will you pay yourself a salary?
Who will handle the accounting?
Where will this business be in 3, 5 or 10 years from now?

Starting a business anywhere, regardless of location, isn’t easy. There’s no way around the hard work and unforeseen obstacles that are bound to occur. But knowing the best and worst locations, along with preparation and pertinent information, can certainly help ease the process and give you the advantage every new business needs getting started.

Joshua Gruss is the Chairman, CEO and founder of Round Hill Music.