States with the highest rates of small business employment

Published 5:00 pm Wednesday, March 15, 2023

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States with the highest rates of small business employment

2021 was a record year for people deciding to work for themselves, with 5.4 million new business applications nationwide—and 2022 has followed close on its heels. Though not all companies will have employees, the surge could lead to a rise in small business jobs in years to come.

This analysis defines small businesses as having fewer than 500 employees, which comprise more than 99% of businesses nationwide. There were more than 6 million of them in the U.S. in 2019, the most recent year of the Census Bureau’s Statistics of U.S. Businesses. These small businesses employed about 61.7 million people—a little less than half of all private workers—and paid nearly $3 trillion in wages.

Swyft Filings used Census Bureau data to identify which states have the highest rates of small businesses employment. States are ranked by the percentage of employees who worked at small businesses in 2019. The data excludes nonemployer businesses, private households, railroads, agricultural production, and most government entities.

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Heat map showing the share of private workers employed by small businesses in each state.

Swyft Filings

Small businesses employ less than half of the private workforce in most states

Nationally, 46% of employees worked for small businesses in 2019. Most states are close within that range, as well. But there are some notable exceptions.

In much of the northwest quadrant of the country, small companies held a larger share of total employees. Montana led the nation, with about 2 in 3 employees working for small bsuinesses—surpassing the national average by 20 percentage points. Leading small business industries for Montana and neighboring states include construction, professional/scientific/technical services, and real estate/leasing, according to the Small Business Association (SBA).

The relatively low cost of living in the Midwest and Mountain regions means small businesses can afford to employ more people than in states with higher living expenses or where they have to compete with larger, high-paying corporations. Montana’s companies benefit from its quality-of-life characteristics, such as work-life balance, outdoor activities, and the landscape’s natural beauty, according to a Montana High Tech Business Alliance survey.

Vermont and Maine also stood out, particularly within the Northeast. Again, the largest industries for small businesses were construction and professional/scientific/technical services, according to the SBA. Most Vermont small businesses are sole proprietorships or unincorporated businesses with a single owner who may or may not have employees.

Heat map showing the average number of private workers in each state.

Swyft Filings

US averages about 22 employees per business

Small businesses have 500 employees or less, but most are considerably smaller. Nearly 9 in 10 of all U.S. companies have fewer than 20 employees. On average, U.S. companies have about 22 employees.

The highest statewide average employment per business is 28 in Washington D.C. Again, the northern Mountain region maintains the lowest averages, namely in Montana, Idaho, and Wyoming, with Vermont following closely behind.

Line chart showing the number of new business applications likely to become employers by year.

Swyft Filings

Business applications, including probable employers, surged in 2021

Of the 5.4 million business applications in 2021, nearly 1.8 million were likely employers. That’s more than any single year in the past 15 years. Through November 2022, about 1.5 million more applications were deemed likely to become employers.

The Census uses a variety of factors to determine likely employers (formally called high-propensity business applications). Considerations include whether an application comes from an existing corporate entity, whether it indicates a hiring plan or planned wages, and if it’s within a handful of industries that typically go on to employ others, such as accommodation, food services, manufacturing, or retail.

Startups are critical to innovation, job creation, and productivity. Though applications—likely employers or not—won’t all materialize into companies, historically, startup activity has followed business application trends fairly closely. There’s a good chance more companies, and in turn, small business jobs, will continue to grow in the months and years to come.

Small bait shop in Florida.

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#51. Florida

– Share of workers employed by small businesses: 40.5% (3.6 million)
– Share of businesses that are small: 98.9% (465,494)
– Annual payroll of small businesses: $154.9B (36.3% of state’s private payroll)
– 2022 small business applications through November: 558,818 (34.3% likely to become employers)

Closeup hands of two people calculating bills and expenses.

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#50. Tennessee

– Share of workers employed by small businesses: 42.2% (1.2 million)
– Share of businesses that are small: 96.5% (97,229)
– Annual payroll of small businesses: $49.0B (37.7% of state’s private payroll)
– 2022 small business applications through November: 84,415 (33.1% likely to become employers)

Grandparent with grandchild in a lute maker shop.

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#48. Arizona (tie)

– Share of workers employed by small businesses: 42.5% (1.1 million)
– Share of businesses that are small: 97.0% (110,403)
– Annual payroll of small businesses: $48.2B (37.2% of state’s private payroll)
– 2022 small business applications through November: 105,966 (29.7% likely to become employers)

Craftsperson in carpentry workshop.

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#48. Georgia (tie)

– Share of workers employed by small businesses: 42.5% (1.7 million)
– Share of businesses that are small: 97.6% (181,536)
– Annual payroll of small businesses: $76.3B (35.9% of state’s private payroll)
– 2022 small business applications through November: 252,191 (27.7% likely to become employers)

Smiling florist holding card reader machine with customer paying with credit card.

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#47. Nevada

– Share of workers employed by small businesses: 42.8% (540,004)
– Share of businesses that are small: 95.6% (52,368)
– Annual payroll of small businesses: $23.5B (40.4% of state’s private payroll)
– 2022 small business applications through November: 57,290 (28.5% likely to become employers)

Entrance to a small inn in Charleston.

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#46. South Carolina

– Share of workers employed by small businesses: 43.0% (837,615)
– Share of businesses that are small: 96.7% (82,820)
– Annual payroll of small businesses: $32.2B (38.6% of state’s private payroll)
– 2022 small business applications through November: 83,645 (26.6% likely to become employers)

Lexington small businesses on street.

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#45. Kentucky

– Share of workers employed by small businesses: 43.3% (722,253)
– Share of businesses that are small: 96.1% (64,723)
– Annual payroll of small businesses: $27.9B (37.2% of state’s private payroll)
– 2022 small business applications through November: 42,973 (29.7% likely to become employers)

Small business with sign that everyone is welcome.

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#44. Indiana

– Share of workers employed by small businesses: 43.8% (1.2 million)
– Share of businesses that are small: 96.9% (106,588)
– Annual payroll of small businesses: $50.6B (38.2% of state’s private payroll)
– 2022 small business applications through November: 76,795 (30.5% likely to become employers)

Business owner of a coffee roaster checking their laptop.

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#43. North Carolina

– Share of workers employed by small businesses: 44.4% (1.7 million)
– Share of businesses that are small: 97.8% (178,487)
– Annual payroll of small businesses: $71.7B (36.8% of state’s private payroll)
– 2022 small business applications through November: 150,702 (30.4% likely to become employers)

Store owner turning open sign through the door glass.

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#42. Texas

– Share of workers employed by small businesses: 44.5% (4.9 million)
– Share of businesses that are small: 98.6% (452,239)
– Annual payroll of small businesses: $233.3B (38.2% of state’s private payroll)
– 2022 small business applications through November: 428,385 (30.7% likely to become employers)

Quaint shops and businesses in Hudson, Ohio.

Kenneth Sponsler // Shutterstock

#40. Ohio (tie)

– Share of workers employed by small businesses: 44.7% (2.2 million)
– Share of businesses that are small: 97.7% (179,051)
– Annual payroll of small businesses: $93.7B (38.4% of state’s private payroll)
– 2022 small business applications through November: 129,404 (27.6% likely to become employers)

A carpenter taking measurements for a frame.

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#40. Illinois (tie)

– Share of workers employed by small businesses: 44.7% (2.5 million)
– Share of businesses that are small: 98.1% (251,107)
– Annual payroll of small businesses: $126.9B (39.0% of state’s private payroll)
– 2022 small business applications through November: 156,745 (36.8% likely to become employers)

Shop owner takes notes with a pen while using a digital tablet.

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#39. Missouri

– Share of workers employed by small businesses: 45.3% (1.2 million)
– Share of businesses that are small: 97.3% (113,475)
– Annual payroll of small businesses: $47.4B (37.8% of state’s private payroll)
– 2022 small business applications through November: 74,692 (29.3% likely to become employers)

Young adult working on sketches while standing in a studio.

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#38. Massachusetts

– Share of workers employed by small businesses: 45.4% (1.5 million)
– Share of businesses that are small: 97.7% (141,939)
– Annual payroll of small businesses: $90.9B (38.0% of state’s private payroll)
– 2022 small business applications through November: 65,865 (39.5% likely to become employers)

Young adult working in a biking repair shop.

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#37. Utah

– Share of workers employed by small businesses: 45.5% (625,571)
– Share of businesses that are small: 96.9% (68,371)
– Annual payroll of small businesses: $27.1B (40.1% of state’s private payroll)
– 2022 small business applications through November: 59,709 (28.5% likely to become employers)

Online business owner packing box for shipment.

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#34. Minnesota (tie)

– Share of workers employed by small businesses: 46.0% (1.3 million)
– Share of businesses that are small: 97.5% (116,317)
– Annual payroll of small businesses: $57.8B (37.6% of state’s private payroll)
– 2022 small business applications through November: 56,372 (32.8% likely to become employers)

Employee checking stock on digital tablet.

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#34. Virginia (tie)

– Share of workers employed by small businesses: 46.0% (1.6 million)
– Share of businesses that are small: 97.6% (151,283)
– Annual payroll of small businesses: $79.1B (40.1% of state’s private payroll)
– 2022 small business applications through November: 113,544 (28.7% likely to become employers)

An antique store in Tunica, Mississippi.

James Kirkikis // Shutterstock

#34. Mississippi (tie)

– Share of workers employed by small businesses: 46.0% (441,099)
– Share of businesses that are small: 95.8% (42,411)
– Annual payroll of small businesses: $15.7B (41.5% of state’s private payroll)
– 2022 small business applications through November: 51,288 (30.3% likely to become employers)

Philadelphia street with small businesses.

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#33. Pennsylvania

– Share of workers employed by small businesses: 46.2% (2.6 million)
– Share of businesses that are small: 98.1% (226,511)
– Annual payroll of small businesses: $115.8B (39.3% of state’s private payroll)
– 2022 small business applications through November: 128,239 (30.4% likely to become employers)

High view of coffee shop with customers.

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#32. Iowa

– Share of workers employed by small businesses: 46.6% (644,100)
– Share of businesses that are small: 96.8% (61,192)
– Annual payroll of small businesses: $26.4B (41.4% of state’s private payroll)
– 2022 small business applications through November: 27,793 (30.3% likely to become employers)

Two people chatting by retail clothing rack.

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#31. Alabama

– Share of workers employed by small businesses: 46.8% (822,668)
– Share of businesses that are small: 96.4% (71,997)
– Annual payroll of small businesses: $33.7B (42.4% of state’s private payroll)
– 2022 small business applications through November: 65,708 (27.5% likely to become employers)

Room shot of a busy cafe full of people socializing.

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#30. Arkansas

– Share of workers employed by small businesses: 47.2% (497,605)
– Share of businesses that are small: 96.3% (49,321)
– Annual payroll of small businesses: $18.5B (39.9% of state’s private payroll)
– 2022 small business applications through November: 34,686 (31.1% likely to become employers)

Small business owner packing cardboard box at workplace.

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#29. Delaware

– Share of workers employed by small businesses: 47.4% (195,792)
– Share of businesses that are small: 93.4% (19,768)
– Annual payroll of small businesses: $9.7B (40.5% of state’s private payroll)
– 2022 small business applications through November: 41,852 (31.8% likely to become employers)

Two people in warehouse packing a shipment.

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#28. Colorado

– Share of workers employed by small businesses: 47.6% (1.2 million)
– Share of businesses that are small: 97.6% (140,662)
– Annual payroll of small businesses: $58.3B (41.0% of state’s private payroll)
– 2022 small business applications through November: 106,527 (32.8% likely to become employers)

Fashion designer looking through fabric samples.

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#26. California (tie)

– Share of workers employed by small businesses: 47.9% (7.4 million)
– Share of businesses that are small: 99.2% (783,945)
– Annual payroll of small businesses: $415.0B (38.5% of state’s private payroll)
– 2022 small business applications through November: 448,998 (42.3% likely to become employers)

Person drilling laminate with power drill on the table.

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#26. Michigan (tie)

– Share of workers employed by small businesses: 47.9% (1.9 million)
– Share of businesses that are small: 98.0% (170,405)
– Annual payroll of small businesses: $85.4B (42.0% of state’s private payroll)
– 2022 small business applications through November: 125,765 (28.0% likely to become employers)

Small businesses line the sidewalk in charming upstate New York town.

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#25. New York

– Share of workers employed by small businesses: 48.1% (4.1 million)
– Share of businesses that are small: 98.9% (461,206)
– Annual payroll of small businesses: $230.1B (38.2% of state’s private payroll)
– 2022 small business applications through November: 275,163 (41.3% likely to become employers)

Fashion designer sketching a design sitting at a table.

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#24. Connecticut

– Share of workers employed by small businesses: 48.2% (741,920)
– Share of businesses that are small: 96.7% (68,118)
– Annual payroll of small businesses: $39.5B (39.4% of state’s private payroll)
– 2022 small business applications through November: 41,152 (29.2% likely to become employers)

Employee getting something from pastry display in small store.

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#23. Nebraska

– Share of workers employed by small businesses: 48.3% (413,735)
– Share of businesses that are small: 96.3% (42,117)
– Annual payroll of small businesses: $17.0B (43.1% of state’s private payroll)
– 2022 small business applications through November: 18,981 (31.1% likely to become employers)

Happy young coffee shop owner talking on phone while typing on their laptop.

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#21. West Virginia (tie)

– Share of workers employed by small businesses: 48.6% (269,473)
– Share of businesses that are small: 94.9% (24,717)
– Annual payroll of small businesses: $9.9B (41.6% of state’s private payroll)
– 2022 small business applications through November: 12,709 (31.4% likely to become employers)

Group of young architects working in an office.

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#21. Washington DC (tie)

– Share of workers employed by small businesses: 48.6% (257,236)
– Share of businesses that are small: 92.3% (17,326)
– Annual payroll of small businesses: $19.4B (43.3% of state’s private payroll)
– 2022 small business applications through November: 13,143 (26.8% likely to become employers)

Person looking at colorful jewelry at an outdoor market.

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#20. Wisconsin

– Share of workers employed by small businesses: 48.8% (1.3 million)
– Share of businesses that are small: 97.3% (105,731)
– Annual payroll of small businesses: $53.3B (40.7% of state’s private payroll)
– 2022 small business applications through November: 59,192 (29.8% likely to become employers)

An employee holding a card reading device attached to digital tablet takes a credit card from a customer.

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#19. New Jersey

– Share of workers employed by small businesses: 49.2% (1.9 million)
– Share of businesses that are small: 98.2% (191,253)
– Annual payroll of small businesses: $96.6B (40.3% of state’s private payroll)
– 2022 small business applications through November: 141,760 (29.2% likely to become employers)

Food trucks on the east shore of Oahu.

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#18. Hawaii

– Share of workers employed by small businesses: 49.3% (272,459)
– Share of businesses that are small: 96.0% (24,677)
– Annual payroll of small businesses: $11.6B (44.9% of state’s private payroll)
– 2022 small business applications through November: 17,109 (31.1% likely to become employers)

Customers and staff in a busy clothes shop.

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#17. Maryland

– Share of workers employed by small businesses: 49.4% (1.2 million)
– Share of businesses that are small: 97.3% (107,212)
– Annual payroll of small businesses: $61.2B (44.7% of state’s private payroll)
– 2022 small business applications through November: 91,187 (29.0% likely to become employers)

A small business with a welcoming open sign.

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#15. New Hampshire (tie)

– Share of workers employed by small businesses: 49.7% (308,296)
– Share of businesses that are small: 95.4% (29,544)
– Annual payroll of small businesses: $15.2B (45.9% of state’s private payroll)
– 2022 small business applications through November: 12,779 (31.3% likely to become employers)

Small city in Kansas with downtown main street with historic shops.

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#15. Kansas (tie)

– Share of workers employed by small businesses: 49.7% (601,426)
– Share of businesses that are small: 96.0% (55,101)
– Annual payroll of small businesses: $24.9B (43.6% of state’s private payroll)
– 2022 small business applications through November: 28,611 (34.2% likely to become employers)

Small business owner packing in the cardbox at workplace.

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#14. Washington

– Share of workers employed by small businesses: 49.8% (1.4 million)
– Share of businesses that are small: 98.0% (156,575)
– Annual payroll of small businesses: $74.4B (38.9% of state’s private payroll)
– 2022 small business applications through November: 81,691 (33.1% likely to become employers)

Carpenters lifting window frame.

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#13. Oklahoma

– Share of workers employed by small businesses: 51.1% (718,033)
– Share of businesses that are small: 96.8% (70,983)
– Annual payroll of small businesses: $29.0B (44.5% of state’s private payroll)
– 2022 small business applications through November: 50,743 (30.5% likely to become employers)

Zero waste shop interior details.

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#12. Rhode Island

– Share of workers employed by small businesses: 51.2% (227,699)
– Share of businesses that are small: 95.1% (23,244)
– Annual payroll of small businesses: $10.5B (46.2% of state’s private payroll)
– 2022 small business applications through November: 10,060 (33.0% likely to become employers)

Technician working with metal.

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#11. Alaska

– Share of workers employed by small businesses: 52.3% (138,517)
– Share of businesses that are small: 96.1% (16,691)
– Annual payroll of small businesses: $7.5B (45.5% of state’s private payroll)
– 2022 small business applications through November: 7,788 (35.2% likely to become employers)

Person working at a traditional shoemaker workshop.

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#10. Louisiana

– Share of workers employed by small businesses: 52.7% (905,726)
– Share of businesses that are small: 97.1% (79,135)
– Annual payroll of small businesses: $38.7B (47.0% of state’s private payroll)
– 2022 small business applications through November: 74,272 (26.9% likely to become employers)

Two wood designers working with laptop in workshop holding small teacups.

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#9. New Mexico

– Share of workers employed by small businesses: 53.7% (346,374)
– Share of businesses that are small: 95.1% (32,776)
– Annual payroll of small businesses: $13.7B (48.7% of state’s private payroll)
– 2022 small business applications through November: 24,845 (28.0% likely to become employers)

Facade of a family business in Sisters, Oregon.

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#8. Oregon

– Share of workers employed by small businesses: 54.4% (893,405)
– Share of businesses that are small: 97.5% (94,568)
– Annual payroll of small businesses: $39.3B (44.9% of state’s private payroll)
– 2022 small business applications through November: 45,738 (33.5% likely to become employers)

Person working at their handmade gifts store.

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#7. North Dakota

– Share of workers employed by small businesses: 55.7% (196,770)
– Share of businesses that are small: 95.2% (18,867)
– Annual payroll of small businesses: $9.1B (49.9% of state’s private payroll)
– 2022 small business applications through November: 7,460 (31.5% likely to become employers)

Interior of busy delicatessen with customers.

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#5. Maine (tie)

– Share of workers employed by small businesses: 56.3% (293,748)
– Share of businesses that are small: 96.6% (33,300)
– Annual payroll of small businesses: $12.0B (49.7% of state’s private payroll)
– 2022 small business applications through November: 11,974 (37.0% likely to become employers)

Historic main street and shops in Wallace, Idaho.

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#5. Idaho (tie)

– Share of workers employed by small businesses: 56.3% (347,193)
– Share of businesses that are small: 96.6% (41,174)
– Annual payroll of small businesses: $13.1B (48.4% of state’s private payroll)
– 2022 small business applications through November: 27,513 (32.8% likely to become employers)

Close up of a card payment being made in a cafe.

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#4. South Dakota

– Share of workers employed by small businesses: 58.0% (208,353)
– Share of businesses that are small: 95.8% (21,473)
– Annual payroll of small businesses: $8.0B (51.0% of state’s private payroll)
– 2022 small business applications through November: 9,695 (32.5% likely to become employers)

Exterior of The Vermont Country Store.

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#3. Vermont

– Share of workers employed by small businesses: 60.2% (157,131)
– Share of businesses that are small: 95.6% (16,962)
– Annual payroll of small businesses: $6.7B (56.3% of state’s private payroll)
– 2022 small business applications through November: 6,938 (33.6% likely to become employers)

Person working in a textile based small business.

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#2. Wyoming

– Share of workers employed by small businesses: 64.1% (132,595)
– Share of businesses that are small: 95.6% (17,777)
– Annual payroll of small businesses: $5.9B (56.6% of state’s private payroll)
– 2022 small business applications through November: 37,992 (21.9% likely to become employers)

Small tourist shops in Gardiner, Montana.

William Campbell // Getty Images

#1. Montana

– Share of workers employed by small businesses: 66.8% (250,680)
– Share of businesses that are small: 97.2% (32,614)
– Annual payroll of small businesses: $9.6B (60.1% of state’s private payroll)
– 2022 small business applications through November: 19,064 (31.3% likely to become employers)

This story originally appeared on Swyft Filings and was produced and
distributed in partnership with Stacker Studio.