Worst US states for business in 2026

The latest WalletHub’s 2025 study reveals the hardest U.S. states to start a business. Learn where entrepreneurs face the biggest challenges and how to adapt.

We’ve gathered everything that matters in one guide: jurisdictions, taxes, payment systems, and the most common mistakes entrepreneurs face when entering new markets.

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Starting a business in the United States often begins with optimism, and then meets the reality of state lines. What looks like one market is actually fifty different economies, each with its own tax rules, labor costs, and business laws. Those differences can quietly decide which startups survive and which struggle.

According to data from the U.S. Bureau of Labor Statistics, approximately 34.7% of private-sector business establishments born in March 2013 were still in operation a decade later, in March 2023 (Bureau of Labor Statistics). This indicates that nearly two-thirds of new businesses failed within the first ten years. Factors contributing to business closures include local conditions such as rent, hiring costs, and taxes, which can make daily operations more challenging than anticipated.

Running a company in a high-cost state such as New Jersey is not the same as launching one in Florida or Texas. Lower costs may look appealing, but they often come with limited investor access or smaller talent pools. The smart move is to weigh these trade-offs early, before registration, not after.

Worst states to do business in the U.S.

Comparing WalletHub and CNBC 2025 rankings

WalletHub’s latest report identifies ten U.S. states where entrepreneurs face the most difficult conditions to launch or sustain a business. CNBC evaluates workforce strength and infrastructure, with some overlap.

Differences reveal how methodology shapes perception: CNBC penalizes cost and infrastructure inefficiencies, while WalletHub emphasizes startup-friendly conditions.

Comparative overview of WalletHub’s worst states and CNBC rankings

State	WalletHub rank (Startup Climate)	CNBC rank (Business Climate)	Appears in both rankings	Primary challenges
West Virginia	41	45	Yes	Weak workforce, limited diversification
Hawaii	42	38	Yes	High living and business costs
North Dakota	43	29	No	Small market size, limited innovation
Iowa	44	31	No	Low startup activity, slow growth
Louisiana	45	48	Yes	Poor infrastructure, low education, high crime
Alaska	46	50	Yes	Oil dependence, isolation, and low population density
Mississippi	47	47	Yes	Persistent poverty, low education, and limited capital access
Nebraska	48	33	No	Low entrepreneurial dynamism
South Dakota	49	27	No	Small population, limited access to funding
Wyoming	50	35	No	Overreliance on energy sector

Interpretation

West Virginia, Hawaii, Louisiana, Alaska, and Mississippi consistently appear on both lists, reflecting systemic barriers to economic diversification, workforce readiness, and affordable operations.

Understanding WalletHub’s rankings: why some states are the hardest places to do business

WalletHub’s recent study uses a quantitative framework to measure these conditions across 50 U.S. states. It groups 28 indicators into three main categories that explain why some states fall behind.

WalletHub measures 28 indicators grouped into three categories:

Business Environment (50%) – startup survival rates, growth trends, industry diversity, and innovation activity;
Access to Resources (25%) – financing, skilled workforce, technology, R&D spending;
Business Costs (25%) – taxes, energy prices, labor, and office expenses.

WalletHub’s 2025 worst states to start a business

Місце	State	Total Score	Business Environment	Access to Resources	Business Costs
41	West Virginia	40.43	48 / 50	50 / 50	13 / 50
42	Hawaii	39.91	42 / 50	42 / 50	33 / 50
43	North Dakota	39.29	44 / 50	33 / 50	38 / 50
44	Iowa	39.20	19 / 50	49 / 50	42 / 50
45	Louisiana	39.02	38 / 50	45 / 50	36 / 50
46	Alaska	38.93	28 / 50	17 / 50	47 / 50
47	Mississippi	38.37	17 / 50	48 / 50	45 / 50
48	Nebraska	37.36	43 / 50	8 / 50	50 / 50
49	South Dakota	34.63	49 / 50	13 / 50	46 / 50
50	Wyoming	33.51	50 / 50	40 / 50	40 / 50

Reader’s Note: A lower overall score in this ranking indicates worse general conditions for starting a business. The positions in each column show where the state “falls behind” — in business climate, resource availability, or operating costs.

Why foreign founders still pick the state of Wyoming (even if Wyoming ranks last)?

Wyoming sits at the bottom of WalletHub’s startup-friendliness list because the local market is small, the economy is narrow, and access to capital is limited. Yet founders still choose Wyoming when they need a lean, low-maintenance legal wrapper for an online or holding structure. The appeal is straightforward: no state corporate income tax or personal income tax, modest annual fees, simple filings. Strong LLC in Wyoming asset-protection features (charging-order protection), and above-average owner privacy compared with many other states. For remote-first teams running e-commerce, content, or SaaS, those fundamentals can keep overhead predictable while the business sells nationally.

There are limits

Venture investors usually prefer the Delaware C-Corp playbook, so Wyoming is rarely the vehicle for priced rounds. State-level perks don’t override federal tax rules, banking/KYC, or sales-tax obligations created by economic nexus in other states where you actually sell. The right way to think about it: use Wyoming when you want a low-cost operating or holding entity with privacy and strong liability protection; use Delaware when you’re optimizing for venture funding and standard governance.

Before incorporating, factor in non-resident tax nuances (ECI/FDAP, potential withholding) and your real go-to-market. Let the target market, fundraising plan, and operating model drive the choice of state and entity—not generic “low-tax” labels. If you’re planning a U.S. launch, explore our end-to-end support for incorporation, banking, and compliance: U.S. company registration.

Choosing Wyoming does not isolate you from the broader U.S. advantages. You can still access the world’s largest, high-spending market under one legal system, plug into standard payment rails in USD (card processors, ACH, wires), and integrate with thousands of marketplaces and SaaS tools. Courts are mature, contracts are enforceable, and IP protection is robust at the federal level. “U.S.-based” on vendor forms and enterprise procurement still carries credibility, even if your entity is a Wyoming LLC.

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State-specific challenges and recommendations for entrepreneurs

Starting a business in the worst-ranked states presents unique obstacles. Entrepreneurs need to understand the local business environment, access to resources, and operational costs before investing time and money. WalletHub’s 2025 study identifies the most challenging states based on these factors, offering insight into where businesses may struggle the most.

Operating in such jurisdictions requires a strategic approach: test hypotheses step by step, build partnerships, and leverage local support programs to maximize effectiveness.

Frequently asked questions about Doing Business in the lowest-ranked States of the U.S.

Why do certain states consistently perform poorly in business rankings?

These states often struggle with structural economic challenges such as weak job growth, low innovation output, and limited access to capital. In addition, factors like underdeveloped infrastructure and declining population growth reduce business confidence and long-term investment appeal.

Is it still possible to succeed in a low-ranked state?

Yes, but success depends on niche strategies. Businesses that adapt to local market realities, such as focusing on resource-based industries in Alaska or logistics in Mississippi, can still perform well. However, such success requires targeted planning and reliance on local.

What practical steps should entrepreneurs take in “tough” states?

Build low-cost, digital, lean operations to keep budgets under control. Apply for federal and state grants, validate your business model with small tests before scaling, and actively network via local chambers of commerce, incubators, and universities. Focus on niches that align with your region’s strengths.

How to choose between Wyoming and Delaware for a startup?

If you plan venture funding or team stock options, the default remains a Delaware C-Corp (investor-friendly and M&A ready). If you need a low-cost, low-maintenance structure without active financing rounds, a Wyoming LLC fits thanks to modest annual costs, privacy, and asset protection. Base the choice on your growth model—not just on state taxes.

What practical steps can entrepreneurs take in challenging states?

Entrepreneurs should run lean and digital operations to reduce costs, apply for federal and state grants, test business models before scaling, and actively network through local chambers, incubators, or universities. Focusing on niche markets aligned with regional strengths increases chances of success.