How Illinois and Chicago can improve the climate for starting a business
The state ranked 45th last year for entrepreneurship. Several moves could reduce barriers.
Illinois ranked 45th nationally for entrepreneurship and growth in the Archbridge Institute’s 2025 social mobility index, highlighting a difficult business environment for the small employers driving the state’s job growth.
Businesses with fewer than 20 employees added more than 19,000 jobs in the state in 2024, accounting for 89% of Illinois’ new jobs. That makes the cost of starting and growing a business an issue in both employment and entrepreneurship.
Illinois and Chicago can reduce barriers to entrepreneurship with steps such as reducing regulations and license fees. In the Archbridge index, within the entrepreneurship and growth category Illinois ranked ninth-highest for regulation and ninth for taxes and costs.
Chicago this year doubled the fee for a two-year limited business license from $250 to $500 and increased the standard regulated business license fee from $250 to $1,000 — a $750 jump.
The city said the increases were to support city services and financial stability, but for an aspiring entrepreneur with little startup capital, another $250 or $750 is money that can’t go toward equipment, inventory or other startup expenses.
Kevon Williams, who has built businesses and workforce initiatives on Chicago’s West Side, encountered these challenges while establishing his nonprofit.
“That capital and energy shouldn’t have been held hostage by administrative barriers. It belonged in the community — hiring local team members, establishing programs, and growing our reach,” Williams said. Through Families School of Excellence, Williams connects residents with employment, training, and entrepreneurship opportunities close to home.
Illinois businesses highly taxed and regulated
The state’s business taxes are among the country’s highest. Illinois charges a 7% state corporate income tax plus a 2.5% personal property replacement tax on net income, creating a combined 9.5% state tax rate for C corporations. Illinois’ rate is the third-highest in the U.S., behind only Minnesota’s 9.8% and New Jersey’s 11.5%.
Meanwhile, Illinois has nearly 292,400 regulatory restrictions in its state administrative code, according to the QuantGov RegData project. That’s more than three times Indiana’s roughly 88,000, Iowa’s 89,900 and Missouri’s 92,100.
Those are instances of restrictive language across the code, not requirements every business must satisfy. Illinois was the fourth-most regulated state in a 2024 report from the Mercatus Center at George Mason University.
Expanding employment opportunities matters for Chicago’s poverty problem. More than 447,000 Chicagoans lived below the poverty line in 2024, about 17% of residents. A report on Chicago block clubs from the Illinois Policy Institute shows a poverty rate of 6.8% among employed residents age 16 and older in the labor force, compared with 39.7% among unemployed residents. The difference underscores the importance of access to steady work.
Insurance costs can make it difficult to start a staffing agency, said Jeff Maxwell, whose Chicago Peace Initiative connects at-risk residents and people returning from incarceration with jobs. “And for someone who is struggling financially it is not easy to obtain,” he said. Maxwell described needing coverage for both employees and the business.
Under Illinois’ Day and Temporary Services Act, covered staffing agencies must register with the Illinois Department of Labor, provide proof of workers’ compensation insurance and pay a $3,000 annual registration fee, plus $750 for each additional branch.
Maxwell’s organization helps some of the populations seeking jobs the most. Removing barriers to business growth could give organizations such as his more employers to work with.
Illinois and Chicago can lower barriers to entrepreneurship in several ways:
- Reduce unnecessary regulations. The social mobility report recommends cutting restrictive regulatory language by 30% and requiring agencies to eliminate two restrictions for every new one added.
- Regularly review occupational licensing requirements. The same report recommends strengthening sunset reviews to eliminate regulations that no longer serve an important purpose.
- Make it easier for Chicagoans to work on neighborhood projects. The Chicago block cubs report recommends faster permitting for community projects and provisional certification allowing skilled residents to perform limited, low-risk work, such as beatification and minor repairs, while maintaining licensing requirements for higher-risk work.
- Re-evaluate Chicago’s increased business license fees. The city should review its 2026 fee increases and reduce license fees that exceed the cost of necessary oversight, particularly those that create significant upfront expenses for small businesses.
Making it less expensive and time-consuming to open a business would give more Chicagoans opportunities to turn their skills into income and hire their neighbors. For a state relying heavily on its smallest employers for job growth, removing unnecessary barriers is a practical next step.