These States Have The Highest Rate Of Alternative Business Financing

This month CNBC released its annual list of Top States for Business, which ranks states by various metrics to determine which have the most conducive environment for owning a successful business.

The 2019 survey reveals some interesting changes in the overall rankings from 2018: Virginia took the top spot from Texas while Rhode Island fell several spots to land at the bottom. Meanwhile, two midwest states saw the biggest year-over-year changes, with Kansas rising 16 spots to take No. 19 and Michigan dropping 13 places to land near the middle of the pack at No. 24.

Although the summary rankings provide for good headline fodder, it’s really the individual components that tell the tale of each state’s private business ecosystem. One of the survey’s most interesting individual statistics is the degree to which there is ready access to capital for businesses in each state.

According to the report’s methodology, CNBC looked at the “venture capital investments by state, as well as traditional bank financing for small and mid-sized businesses.”

While this may account for a large slice of the funding pie, it is by no means a comprehensive picture. More so than ever, a greater number of small- and medium-sized businesses are seeking financing from national fintech lenders.

With that in mind, Benzinga drew on geographic lending data from small business fintech Credibly, as well as information on the number of small businesses in each state gathered from the U.S. Small Business Administration’s most recent “Small Business Profiles for the States and Territories” to see which states had the highest degree of business financing from nontraditional sources. The results prove an interesting contrast to the CNBC survey.

Here’s what we found:

Proportions Matter

States with fewer than 100,000 small businesses, like Delaware, Rhode Island, Alaska and, at the top spot, Wyoming, are all among the top 10 of those with the highest rate of alternative financing.

Although this data point might seem skewed to overemphasize less business-dense regions, other states with a low number of small businesses like North and South Dakota actually had a relatively small ratio of fintech borrowers.

Overall, while size did play a role in the final ratios, the results are still illustrative of a trend that businesses in smaller or less populous states are finding the benefit of fintech borrowing at least as much, and likely more so, than their larger counterparts.

Borrowers At Scale

While less business-dense states made up much of the top 10, the overall state rankings saw a diverse distribution of populations and regions. Places with a high concentration of small businesses like California, Georgia and New Jersey also had some of the highest ratio of fintech clients alongside fast-growing states like Colorado and Washington.

Meanwhile, the middle of the list was populated with several states that are loci of small business activity, including New York, Pennsylvania and North Carolina. At the bottom of the list were Kentucky, South Dakota and Arkansas.

Beyond Their Own Backyard

When compared to the CNBC rankings, it’s interesting to note that many of the states with the lowest rank in the “Access to Capital” category also have the highest ratio of fintech borrowers. This includes states like Vermont,  Alaska and Wyoming.

At the same, very few states that are highly ranked in the availability of capital have a low ratio of fintech borrowers, with Illinois and Minnesota showing the biggest discrepancy.

However, the overall distribution suggests that Credibly, and other nontraditional lenders are making strong headway among small businesses nationwide.

States With the Highest Ratio of SMB Fintech Borrowers to Total Number of Small Businesses

1. Wyoming                 14. Arizona              27. New Mexico         40. Missouri           
2. Hawaii                     15. California           28. Texas                    41. Minnesota
3. Rhode Island           16. Florida               29. South Carolina     42. Mississippi
4. Alaska                      17. Connecticut      30. North Dakota       43. Maine   
5. Nevada                    18. New Jersey        31. Utah                    44. Louisiana   
6. Delaware                 19. Michigan            32. Illinois                  45. Iowa
7. Washington             20. Massachusetts   33. Tennessee          46. Nebraska   
8. Maryland                 21. New York            34. Indiana               47. Kentucky
9. Vermont                   22. Pennsylvania      35. West Virginia       48. Kansas
10. Georgia                 23. Oregon                36. Montana             49. South Dakota   
11. New Hampshire    24. Virginia                37. Ohio                    50. Arkansas       
12. Idaho                     25. North Carolina    38. Wisconsin       
13. Colorado               26. Alabama              39. Oklahoma   

Credibly is a content partner of Benzinga