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The State of Small Business: Illinois

The State of Small Business: Illinois

As part of our yearlong project, "The State of Small Business," in which we will report on the small business environment in every state in America, Business News Daily asked a few of Illinois' 1,169,961 business owners to tell us about the challenges and opportunities of doing business in their state. Here's what they had to say.

Illinois' small businesses operate in an environment that includes high taxes, uncertainty generated from budgetary deadlock in the state capital and an economic recovery that has not kept pace with the rest of the nation.

However, a skilled and diverse labor force and a major metropolitan market in Chicago offer unique opportunities to entrepreneurs willing to brave the business climate here. For small business owners who can take advantage of these opportunities and successfully navigate the myriad challenges, Illinois can be fertile ground for growing profits.

[See Business News Daily's complete coverage of the State of Small Business in the U.S.]

Invariably, the gridlock in Illinois' capital was a big concern for the small business owners we interviewed. A long-term budgetary impasse in the state's capital, Springfield, doesn't seem to have directly affected entrepreneurs yet, but they are aware of the risks posed if the state legislature fails to reach a deal this year. Those concerns are harming entrepreneurs' outlooks.

"The landscape here in Illinois is so negative. We don't have a state budget, and we're six months into the fiscal year," Jim Peddle, a business broker for Sunbelt Business Brokers, told Business News Daily.

In October 2015, Moody's Investors Service downgraded the state's credit rating to Baa1, making it dead last in the United States and increasing the cost of borrowing money. Moody's has listed the state's outlook as "negative."

"The state government is broke," Mazyar Hedayat, owner of the law firm M. Hedayat & Associates, said. "There has just been decades of mismanagement. Not just at the state level, but also at the municipal level."

Ken Eisler, senior vice president and product and segment manager of business banking at First Bank, said the uncertainty over whether the state will be able to fund beneficial projects or services in the near-term has a chilling effect on business and the economy at large.

"The state can't even pay their lottery winners. That just breeds uncertainty in the business community," Eisler said.

Entrepreneurs also reported relatively high taxes as a primary drawback to doing business in Illinois. The top marginal corporate income tax rate stands at 7.75 percent after the additional personal property replacement tax, according to the Illinois Department of Revenue. The state sales tax is 6.25 percent, but in certain municipalities it can reach numbers as high as 9.75 percent.

"The biggest challenge of operating a business in Illinois comes down to one word: taxes," Bret Bonnet, CEO of Quality Logo Products, said. "There is so much money going out in taxes and other costs. I would never have incorporated in Illinois if I had known how bad it was going to be."

Between the budget deadlock and the high taxes, residents' dissatisfaction with the state government shows. In October 2015, both Gov. Bruce Rauner (R) and the state legislature's approval ratings reflected Illinoisans' concerns about the future of the state's economy. Rauner saw a 34.4 percent approval rating, while 53.2 percent disapproved of the job he was doing. The General Assembly fared far worse; only 9.8 percent of Illinoisans approved of its performance, while 57.2 percent disapproved.

"Illinois is an expensive place to start a business," Nadeem Khan, a franchisee of Fresh Healthy Vending, said. "There is also talk of a permanent tax-rate hike that will result in higher prices for consumer items, including food."

Illinois' economic recovery in the wake of the financial crisis in 2008 has been anything but speedy. The state does have the fifth largest gross domestic product in the nation, but its rate of growth is anemic, at 1 percent in 2014. The nation's GDP, by comparison, grew at a rate of 2.2 percent over the same year. In addition, Chicago's unemployment rate was slow to come down, dropping below 6 percent only in spring of 2015, for the first time since the recession.

"Very small businesses and startups may struggle with extra costs [in taxes and fees,] but once established, they aren't a game-breaker," Jacob Aune, artisan and co-founder of Altare Design, said. "A bigger concern for some businesses may be slow growth and the general lack of new development."

Sluggish growth is a particularly daunting reality for the rural communities of southern Illinois. Those towns, which are vastly different from the Windy City, have experienced a slowdown in farm purchases and are not buying new equipment at the same rates they once did, said Eisler, the First Bank SVP.

"Illinois is really like two different states," Eisler said. "I would say, overall, southern Illinois is not growing. Looking at 2015 and beyond, I think it's going to be flat."

Things aren't all bad in Illinois. Entrepreneurs in Chicago, home to the majority of the state's businesses, reported a strong market. Chicago is home to a diverse population of nearly 3 million people, according to the U.S. Census Bureau. With a lot of people, comes great demand for goods and services, and plenty of opportunity to attract new customers.

"I have operated businesses in Illinois, Indiana and Florida. Illinois, specifically Chicagoland, has the largest and most diverse population of the three," Bill Davy, owner of Fred Astaire Dance Studios, said.

Michael Krasman, CEO and co-founder of UrbanBound, said beyond the city's population alone, Chicago is a great environment that attracts people from all over the country.

"Chicago, in my opinion, is the greatest city in the U.S. from multiple perspectives: the people, the city's beauty, the world-class restaurants, the outstanding shopping, the nightlife and cultural venues, and the proximity to some of the best universities and talent in the world," Krasman said.

In addition to Chicago's large population, the metropolitan area is a known for its robust rail network and the O'Hare and Midway international airports. For small business owners who need to travel or transport goods to a distant market, Chicago guarantees strong connectivity.

"Being centrally located by a national transportation hub makes Illinois an ideal place for quickly shipping products anywhere in the 48 states," Aune of Altare Design said. "I can obtain just about any supplies needed to manufacture wood products locally, then tap into markets across the country."

Hedayat, who is an Illinois-based serial entrepreneur in addition to an attorney, said Illinois' central location has always made it a reliable place for him to set up shop.

"If you're going to do business anywhere in the Midwest, Illinois is a great bet because it's a national transportation hub for flying, rail or even shipping," Hedayat said.

Scores of universities and colleges are located in the Chicago area, offering valuable access to educational opportunities and skill building. That translates into a highly skilled labor force, said the small business owners we interviewed.

"We have access to hiring tremendously skilled talent in key areas," Ross Kimbarovsky, co-founder of crowdsourced design company crowdSPRING, said. "These people have cut their teeth at significant and successful companies in the area. That's one huge advantage."

According to the Bureau of Labor Statistics, there is a labor force of more than 6.5 million people throughout the state, giving business owners a broad community to select from.

"In Illinois, especially so close to Chicago, there is a large pool of talented people as potential employees," Bonnet of Quality Logo Products said.

Entrepreneurs in Illinois, particularly in Chicago, also have access to a wide range of support and development organizations. From the government-backed SCORE and Small Business Development Center to universities and startup accelerators, mentorship and assistance are widely available to small business owners.

"Setting up my business was easy, and business resources are prevalent through local groups, as well as Illinois State University's College of Business," Kristin Rae, founder of Inspire Travel Luggage, said. "Also, locally, there is a vibrant community of entrepreneurs and young professionals."

If you're a small business owner in Illinois looking for resources to help you move forward, here are a few organizations you might want to learn more about:

Illinois Small Business Development Centers

Illinois is home to 17 small business development centers. Each is dedicated to supporting the development and retention of small business, and helps entrepreneurs with tasks like crafting business plans and navigating the state's tax code. You can find your region's small business development center via the link below.

Illinois SBDC Network

Illinois SCORE

SCORE offers volunteer business professionals and expert "mentors" to help give counseling and guidance to entrepreneurs looking to start or expand their businesses. The group's services are free and volunteer-driven. Here is a comprehensive list of SCORE locations in Illinois.

Illinois SCORE Locations

Illinois Department of Commerce & Economic Opportunity

The primary focus of the Illinois Department of Commerce & Economic Opportunity (DCEO) is to promote the retention and creation of jobs and to perpetuate economic growth. To this end, the department has access to resources and information that can benefit entrepreneurs. To find out more, visit the department's website at the link below.
Illinois DCEO

Illinois Incubators

This is a website that watches and reports on incubators and accelerators throughout the state. It is a treasure trove of information for startups looking to apply to such programs, which can give you exposure, capital and the knowledge needed to boost your entrepreneurial endeavor to a higher level. Follow the link below to learn more.

Illinois Incubators

College of Business - University of Illinois

Hosting one of the state's small business development centers, as well as the iVenture Accelerator, the College of Business at the University of Illinois was cited by several small business owners as a prime resource. Find out more about how to connect with the university at the school's website, which is listed below.

College of Business - University of Illinois

Adam C. Uzialko

Adam C. Uzialko, a New Jersey native, graduated from Rutgers University in 2014 with a degree in Political Science and Journalism & Media Studies. In addition to his full-time position at Business News Daily and Business.com, Adam freelances for a variety of outlets. An indispensable ally of the feline race, Adam is owned by four lovely cats.

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