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Iowa is the 27th best state for starting a business, report says

(The Center Square) – Iowa is 27th best in a national ranking when it comes to starting a business.

The ranking comes from a state-by-state report released this week by WalletHub.

Almost half of businesses fail before their fifth anniversary, according to the U.S. Bureau of Labor Statistics. To find which businesses support businesses best, WalletHub evaluated states across 27 indicators of startup success across three criteria: Business Environment, Access to Resources and Business Costs. Business Environment provided half of the score, and the other two dimensions evenly split the other half.

No Midwestern state made it into the top 10 best states to start a business. Compared with neighboring and Midwestern states, Iowa fared better than Michigan (21st),  Wisconsin (37th), Minnesota (38th) and Missouri (40th), but South Dakota (18th), Nebraska (25th) and Illinois (26th) eked out victories over the Hawkeye State.

Iowa ranked 31st in Business Environment, 27th in Access to Resources and 23rd in Business Costs in the report. Still, the state had the fifth most accessible financing and the cheapest office spaces rent in the nation. Iowa’s rent is half the cost of New York’s.

Business Environment metrics included average length of work week, share of engaged workers, growth of average business revenues, entrepreneurship index and percentage of residents who are fully vaccinated against COVID-19.

Human-capital availability, or the number of job openings per number of civilians in the labor force minus the unemployment rate, was the metric that received the heaviest weight for the Access to Resources indicator. Other metrics included financing accessibility, or the total annual value of small-business loans divided by the total number of small businesses, and the venture investment amount per capita.

Office-Space Affordability, or the per-square-foot cost of commercial office space, and labor costs, or the median annual income of the state, each received double weight in the Business Costs dimension. Average annual single insurance premium per enrolled employee, corporate taxes, total effective state and local tax rates on mature corporate headquarters, total spending on incentives as share of GDP and cost of living received full weight.

Utah, Florida and Texas are the best places to start a business, while Alaska is the worst place to start a business, the report found. However, Oklahoma, Mississippi and West Virginia were the top three states for Business Costs while New Jersey, California and Maryland performed most poorly in that dimension.

Pace University Clinical Professor of Management Bruce Bachenheimer said in the report that tax breaks and other incentives to encourage new businesses often don’t produce net economic gains for states.

“Businesses may take advantage of these new incentives while they last, but then look to move on to the next economic opportunity just as quickly,” he said. “States should conduct the same careful due diligence and long-term analysis that corporations do when crafting such incentives,” he said.

He said state policymakers need to think wholistically and create the right mix of government incentives and business opportunities.

“Each state must work hard to recognize its unique strengths and weaknesses, and then carefully construct policies that genuinely benefit a new business,” he said.

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