Most Popular States for 401(k) Business Financing

When it comes to starting a business, more entrepreneurs find that they have an unexpected source to fund their new ventures: their own 401(k). Using funds accumulated over years, entrepreneurs can use 401(k) business financing, also called Rollovers for Business Start-ups or ROBS, to start and fund a new business without triggering penalties or taking loans against the funds.


Although this type of funding has been available throughout the country since the mid 1970s, it is more popular in some states than others. In fact, a recent survey sponsored by LendingClub and Guidant Financial found that nearly half of the small businesses that used ROBS financing (46.6%) were located in the top 10 states for 401(k) business financing.

One reason for the popularity of Florida, Arizona, North Carolina, South Carolina could be simply that these states are top states where people move when they retire. In addition, Florida, Texas, and Washington don’t tax any income, which includes Social Security and pensions. The other states on the list exempt Social Security income from taxes. Another reason the top three might rank high on the list is population — they are the top three most populous states.

Here are the top 10 states and why funding businesses using ROBS makes sense in each.

10. Michigan (tied, 3.18% of businesses)

Michigan is new to the list since last published in 2016. A simplified corporate income tax on C corporations of 6% signed into law in 2011 has helped small businesses thrive, especially because taxpayers with less than $350,000 in receipts are exempted. In addition, the cost of living is third lowest ranking only behind Mississippi and Oklahoma. In 2012, Michigan lowered its personal income tax from 4.35% to 4.25%.

9. Virginia (tied, 3.18% of businesses)

Virginia is also new to the list since 2016. While bordering Washington, D.C. and also having extensive rural areas, Virginia offers locations for businesses that work in government-related areas as well as less expensive regions to locate businesses that don’t depend on a large city. One area where Virginia excels is minority-owned businesses. In our survey, nearly half of Virginia respondents (48%) identified themselves as non-Caucasian. With three of the top 10 counties in per capita income, including Loudoun County, which is number 1, building a small business here catering to high income individuals can pay off. With a few exceptions, the income tax on corporations is 6%. The tax on incomes is progressive, topping out at 5.75% for income over $17,000.

8. Arizona (3.41% of businesses)

Arizona moved up from 10th place in 2016. Its proximity to California combined with lower sales taxes (5.6%) and flat corporate tax of 6.968% and a progressive income tax that ranges from 2.59 to 4.54% make it a relocation haven for companies fleeing the higher tax burdens in the neighboring state. A 2016 survey of small businesses by the Federal Reserve Bank of San Francisco found that businesses in Arizona were more profitable, less in debt, and were younger than average.

7. North Carolina (4.32% of businesses)

Moving down a few pegs from #4 last time, North Carolina still has a good environment for small business. North Carolina has relatively low income flat tax rate of 5.75%, a 4.75% sales tax and a 4% corporate income tax. Forbes ranked North Carolina the #1 state for business for its low labor costs and its regulatory environment in 2017.


Learn more about your funding options: Pre-qualify Today.


6. Illinois (tied, 4.55% of businesses)

Moving up from its previous position at #6, Illinois finds itself with a good business climinte despite relatively high taxes — some municipalities have sales taxes approaching 10%. This is offset by a diverse population in Chicago, where most Illinois businesses are located. One advantage is being a hub of the country for air and rail transportation. Illinois offers many incentives for small businesses, including additional resources supporting minority entrepreneurship.

5. Washington (tied, 4.55% of businesses)

Remaining in the same position, Washington state has a strong economy — often with small businesses growing up in support of larger companies such as Amazon and Microsoft. With no state income tax, it is a strong draw. Washington state offers numerous business incentives based on industry.

4. South Carolina (4.77% of businesses)

New to the list and coming in strong at #4, South Carolina is actively offering many state and local incentives to both new and existing businesses. There are job tax credits, no state property tax, no sales tax on machinery to manufacture goods, power for industry or raw materials, and no wholesale tax.

3. Florida (5.68% of businesses)

Holding steady from the last survey at #3, Florida offers many benefits for entrepreneurs, especially those who might eventually want to settle into retirement there. With many major cities spanning the state, including Miami, which is the Capital of the Americas, and an influx of tourists from around the world, there are always many opportunities. And the state encourages business by offering no tax on income, capital gains, or from inheritance as well as many tax credits. There’s even a public/private partnership, Enterprise Florida, which tells you many ways you build a business with help from the state.

2. Texas (8.64% of businesses)

Continuing a strong second is Texas, which provides fertile ground for new businesses year after year. After fast-rising North Carolina, Forbes ranks Texas second as well on its Best States for Business list for its strong economic climate, growth prospects, and costs for doing business. The Texas Office of Economic Development offers many incentives to businesses large and small, even creating a fund supporting large events held in the state. While keeping personal and corporate income taxes low is a positive factor for business, the sales tax, which is high at 8.25% can be an economic barrier. And the advice from the state government is not held captive in Austin, the state capitol: there are 60 regional small business development centers around the state to help entrepreneurs.

1. California (8.86% of businesses)

Perennial small business leader continues as the #1 small business state, after all, it beats out many countries, including the United Kingdom, as the 5th largest economy in the world. Although taxes are high, the unique nature of the San Francisco Bay area’s Silicon Valley tech center and the entertainment capital of Hollywood draw people and new businesses to California. The state offers a portal for business incentives where Energy, Biotech, and Arts among the categories offered.

Navigation banner to Guidant Financial's State of Small Business Report
Table of Contents

Download the Guide

Download the Complete Guide to 401(k) Business Financing – you can save it for later or print it at your leisure.

Download the Guide

Download the Complete Guide to 401(k) Business Financing – you can save it for later or print it at your leisure.

If this was useful, you might like:

Buy a Business

Can I Withdraw from My 403(b) To Buy a Business?

Starting a business doesn’t have to be daunting with the right strategy for financing. If you have a 403(b) retirement account, the money required to purchase the business of your dreams could be right in front of you.

ROBS Financing

Do You Qualify for 401(k) Business Financing?

One of the biggest hurdles when it comes to starting a business is finding the money to make your dreams a reality. 401(k) business financing doesn’t require a down payment, interest, or a high credit score.

Scroll to Top