Grants, loans and capital investments can provide a crucial boost to a young business, but not every region provides the same level of support. Find out if your state is a good place for entrepreneurs to find the backing they need.

In today’s economic climate, even the most experienced entrepreneurs might need a helping hand. But although federal stimulus funding has been used to support ailing automakers and banks, small businesses and startups have had a more difficult time obtaining public funds or loans for their enterprises. Fortunately, conditions tend to be better on a regional level, with many states providing benefits and favorable lending practices to encourage local entrepreneurship.

“Things are a bit rosier at the state level,” Forbes.com explains. “Many states offer incentives for entrepreneurs to put roots down and create jobs. Grants, loans, equity capital: It’s all out there if you know where to look. Some of the best programs have been operating for more than two decades and, collectively, have doled out billions of dollars.”

Of course, states vary in their degree of “friendliness” to entrepreneurs, with some offering more favorable conditions than others. Some of the key criteria in determining the small business and startup climate in a particular state are capital gains and corporate income taxes; property, sales, gross receipts and excise taxes; local operational costs; regional compensation rates; and health care and regulatory expenses.

Based on these factors, the Small Business & Entrepreneurship Council (SBE Council) provides rankings of each state’s favorability for entrepreneurs in a late-2009 report.

According to the findings, the following are the top 10 most favorable states for entrepreneurs, in descending order: South Dakota, Nevada, Texas, Wyoming, Washington, Florida, South Carolina, Colorado, Alabama and Virginia.

These states are characterized by relatively low taxation levels and fewer regulatory measures that add expenses onto business activities or slow down investment. Compensation rates, cost of living and health care expenses are also favorable to small business owners in these regions.

The least-favorable areas for entrepreneurs, according to the report: the District of Columbia, New Jersey, California, New York, Vermont, Maine, Rhode Island, Massachusetts, Minnesota and Hawaii.

“Without a doubt, the biggest obstacle to entrepreneurship and investment is public policy gone awry,” the SBE Council asserts. “While most politicians talk a good game about entrepreneurs and small businesses, public policy too frequently raises costs, creates uncertainty and diminishes incentives for starting up, investing in and building a business. And again it’s not just elected officials at the federal level that cause problems. It certainly occurs at the state and local levels as well.”

While public policies may play an important role in the small business landscape, there are a number of state-run funding programs that can improve entrepreneurship opportunities in challenging areas. Forbes.com provides a list of major small business funding programs operated by various states, including the following:

• Ohio Third Frontier — Focusing on health care and technology startups, this program has a $1.6 billion endowment. Since 2002, the companies it has supported have earned more than $3.2 billion in additional investment and currently employ 55,000 workers in Ohio.
• Michigan Pre-Seed Capital Fund — Focused on funding startups nearing commercial viability in automotive and manufacturing fields, alternative energy, security and life sciences, the Pre-Seed Capital Fund has distributed $7 million to 30 different startups since 2007.
• Massachusetts Technology Collaborative — Founded 25 years ago, this program has distributed more than $500 million in grants to support the tech industry in Massachusetts, which accounts for a quarter of the state’s employment.
• Ben Franklin Technology Partners — This Pennsylvania-based program has provided $150 million in equity capital to 60 companies in the life sciences, communications and information tech industries.
• Texas Emerging Technology Fund — This program has matched private funding for 21 companies, with investments in fields such as nanotechnology, manufacturing, biofuels and lithography.
• Maryland Technology Development Corporation — This initiative has provided grants for 174 companies since 1998 and each dollar it has spent in seed funding has yielded $32 in additional investment from other sources.
• Connecticut Innovations — Focused on energy and biotech firms, Connecticut Innovations has offered equity capital to over 100 companies and has created 5,000 jobs in its home state since 1995.
• Indiana 21st Century Research and Technology Fund — This program has contributed a total of $100 million to match private funds for 75 companies since 1995 and is responsible for more than 5,000 additional jobs in Indiana.

This is merely a sampling of the many state-supported funding programs available to small businesses and startups around the country. There are also numerous grant and lending opportunities provided through the private sector. For example, business software firm Intuit is offering small business grants worth $70,000 based on which businesses local communities vote to support. Submitting your business or one that you like for this or a similar funding program can be a useful way to obtain financing when you need it most.

Resources

States that Truly Bet on Small Business
by Christopher Steiner
Forbes.com, May 3, 2010

Small Business Survival Index 2009
Small Business & Entrepreneurship Council, December 2009

11 Serious State Small-Biz Funding Programs
By Christopher Steiner, May 3, 2010
Forbes.com, May 3, 2010

Love a Local Business
Intuit Small Business, 2010