The top city to start a small business in America

  • For a second year in a row, New York City surpassed Silicon Valley to become the top city for small business, according to Biz2Credit's annual study.
  • The Big Apple's dynamism and diverse industry base has helped fuel growth and make it a magnet for entrepreneurs.
  • The high cost of doing business and high cost of living is a drag on entrepreneurs in Silicon Valley.
  • Small-business owners in New York City had an average annual revenue of $1,016,446.
The real estate and construction boom, as well as the talent pool, has boosted New York City to the No. 1 spot for starting a small business in the U.S.
Saul Loeb | AFP | Getty Images
The real estate and construction boom, as well as the talent pool, has boosted New York City to the No. 1 spot for starting a small business in the U.S.

For a second year in a row, New York City surpassed Silicon Valley to become the top city for small business, according to Biz2Credit's annual study of the Top Small Business Cities in America. The Big Apple's dynamism and diverse industry base has helped fuel growth and make it a magnet for entrepreneurs. The city's booming real estate market and construction industry, banking and finance, tourism and technology sectors are major drivers of this trend.

New York City overtook small-business city leader San Jose, California, the hub of Silicon Valley, last year. The California city has the No. 2 spot on the list. While technology companies are thriving in Silicon Valley, the high cost of doing business and the high cost of living is taking a bite out of profits for many small firms. High taxes and commercial rents are a significant drag on small-business owners there.

As a result, the average annual revenue for small businesses in New York City is $1,016,446 compared to $748,529 in San Jose, the Biz2Credit survey revealed.

The real estate and construction boom has helped small businesses such as Queens-based Superior Glen Construction, which builds hotels in New York.

"Last year we had revenues of $11 million. In the past two years the amount of work we are doing has increased," said Amritpal Sandhu, owner of Superior Glen Construction. "There is a lot of construction happening all over New York City."

Another factor that secured the New York City lead is its talent pool. Further, the city attracts a talent pool of the best and brightest college graduates from the top schools in the region and across the country. That gives it a competitive advantage.

Small-business revenue growth

For the survey, Biz2Credit analyzed 27,000 small businesses with fewer than 250 employees. Firms in the study had to be operational for at least one year and had less than $10 million in annual revenues. The ranking is based on a weighted average of data on Biz2Credit's customers across the country. The study looks at the health of small companies in each metro area, the rate of small-business creation and the economic ecosystems for entrepreneurs, including the cost of doing business, tax climate and local talent pool.

New York City topped the list after registering the highest-average annual revenues, and its business owners had the second-highest credit scores, at 639, compared to 654 for San Jose, which ranked first in credit score numbers. New York won the overall top spot because it placed atop Biz2Credit's proprietary BizAnalyzer score, which considers local economic factors that may not be applicable in other areas, such as cost of doing business and tax rate.

A diversified economy

Over the last year, Mayor Bill de Blasio has tasked city agencies to continue to fuel small-business growth. Throughout the city, incubators and co-working spaces are springing up. The latest will be the Union Square Tech Hub, slated to open in 2020. It will include 58,000 sq. ft. of fluid work space for start-ups and a 36,500-sq.-ft. tech training center.

In April, Mayor de Blasio announced a first-of-its-kind targeted loan program that will make more than $5 million in affordable capital accessible to women entrepreneurs seeking to grow their businesses. It partnered with local lending institutions, such as the Renaissance Economic Development, and launched WE Fund Growth to overcome barriers faced by women seeking to grow their businesses. It will offer loans to women-owned firms between $25,000 and $125,000.

In April, Mayor de Blasio announced a first-of-its-kind targeted loan program that will make more than $5 million in affordable capital accessible to women entrepreneurs seeking to grow their businesses.
Spencer Platt | Getty Images
In April, Mayor de Blasio announced a first-of-its-kind targeted loan program that will make more than $5 million in affordable capital accessible to women entrepreneurs seeking to grow their businesses.

"The baseline economic disparity between men and women is actually causing aspiring women entrepreneurs to miss out on opportunities for financial empowerment," said Gregg Bishop, Commissioner of the New York City Department of Small Business Services. "With WE Fund Growth, we're ensuring that women have every opportunity to grow a successful business here in New York City."

Meanwhile, New York City is committing $100 million to create a "life sciences hub" with the goal of making the city competitive with Boston and San Francisco as a place to start biotechnology companies. The money is part of $500 million in resources the city has earmarked to draw biotech investment, according to a report by Forbes.

Cool, innovative small businesses are popping up in Soho, lower Manhattan. Throughout the city, incubators and co-working spaces are springing up.
Alexander Spatari | Getty Images
Cool, innovative small businesses are popping up in Soho, lower Manhattan. Throughout the city, incubators and co-working spaces are springing up.

While New York City has long been known as a hub for finance, e-commerce and health-care start-ups, in recent years a new breed of start-ups has emerged, according to Business Insider. These companies include Brooklinen, an e-commerce company that sells "luxury bedding at non-luxury prices," and Bowery, an urban farming company that grows plants indoors under LED lights instead of sunshine in nutrient-rich water beds instead of soil. (Bowery raised $27.5 million from venture capitalists and celebrity chef Tom Colicchio.) Elysium Health, which is developing supplements that could prevent aging, raised $20 million in funding from a variety of investors.

The Top 25 Cities for Small Business in 2018 ( 2017 ranking in parentheses)

  1. New York City (No. 1)
  2. San Jose, California (No. 4)
  3. Miami-Fort Lauderdale (No. 2)
  4. San Francisco (No. 8)
  5. Los Angeles(No. 5)
  6. Riverside-San Bernardino, California (No. 10)
  7. Washington, D.C. (No. 16)
  8. Austin, Texas (No. 3)
  9. San Diego (No. 14)
  10. Sacramento, California (No. 18)
  11. Phoenix (No. 7)
  12. Chicago (No. 19)
  13. Dallas-Fort Worth (No. 13)
  14. Seattle (No. 6)
  15. Atlanta (No. 20)
  16. Baltimore (No. 12)
  17. Denver (No. 17)
  18. Las Vegas (No. 23)
  19. San Antonio (No. 21)
  20. Detroit (No. 15)
  21. Houston (No. 11)
  22. Philadelphia (No. 24)
  23. Portland, Oregon (No. 11)
  24. Charlotte, North Carolina (No. 22)
  25. Kansas City, Missouri

Six metro areas in California were among the Top 10 Best Cities for Small Business Growth:

San Jose (No. 2), San Francisco (No. 4), Los Angeles (No. 5), Riverside-San Bernardino, (No. 6), San Diego, CA (No. 9) and Sacramento (No. 10). All of these cities have robust technology sectors.

The Miami-Fort Lauderdale metro area ranked third. Average annual revenues for businesses in the greater Miami area trailed only those of New York ($854,540 for Miami vs. $1,016,446 for NYC). Construction is growing, and the area continues to attract entrepreneurs, especially Latino small-business owners. Miami is considered a gateway to Latin America, and Latinos have accounted for more than half of the U.S. population growth over the last 15 years.

"Miami Beach has been a great place for small business," said Mandy Calara, owner of Voodoo Rooftop Lounge in Miami Beach. "Businesses benefit from a nice mix of local and tourist traffic, with both being important for sustaining good sales and income. The city is continuing to grow each year, both with residents and out-of-state visitors."

"Our business has had year-over-year growth for five consecutive years, with several years increasing by over 50 percent year-over-year," added Calara, whose restaurant offers full-service food, handcrafted cocktails, local draft beers and an array of hookah varietals.

The Top 10 metro areas by average annual revenue

  1. New York City ($1,016,446)
  2. Miami-Fort Lauderdale ($854,540)
  3. San Jose, California ($748,529)
  4. Baltimore ($726,707)
  5. Riverside, California ($725,713)
  6. Dallas ($685,531)
  7. Los Angeles ($674,543)
  8. San Francisco ($657,216)
  9. Chicago ($620,036)
  10. Sacramento, California ($587,682)

When sorted by Credit Score, San Jose was the leader at 654. Silicon Valley maintains its position as one of the top economic areas in the United States.

  1. San Jose, California (Score: 654)
  2. New York City (Score: 639)
  3. Riverside, California (Score: 638)
  4. San Francisco (Score: 633)
  5. Miami-Ft. Lauderdale (Score: 631)
  6. Los Angeles (Score: 631)
  7. Washington, D.C. (Score: 627)
  8. Las Vegas (Score: 623)
  9. Sacramento, California (Score: 623)
  10. Atlanta (Score: 616)

2018 hot spots

The annual survey revealed other interesting trends.

  • Washington, D.C., jumped nine spots on the Biz2Credit rankings. Government-related firms, such as cybersecurity companies, are doing quite well, as are any businesses that service the Federal bureaucracy.
  • Las Vegas leaped from No. 23 to No. 18 this year. The thriving entertainment industry — including the stunning success of the NHL's Golden Knights expansion franchise and a booming real estate market — contribute to its success. Nevada does not collect state income tax, and immigrants from Latin America and Asia are moving in and starting businesses.
  • Kansas City, a relatively low-cost city in the Midwest, cracked the Top 25. The economy is doing well, with no sign of a recession in the foreseeable future. Its steady pace since the end of the Great Recession makes it a beacon of stability, according to the Mid-America Regional Council.

— By Rohit Arora, special to CNBC.com, is also the co-founder and CEO of Biz2Credit