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The 8 Best Cities for Small Business in California (As Shown By Data)

Ben Johnson

Ben Johnson

Contributor at Fundera
Ben Johnson is the former content marketing manager at Fundera. He specializes in data-driven studies and life hack articles to help business owners prepare for the future.
Ben Johnson
Editorial Note: Fundera exists to help you make better business decisions. That’s why we make sure our editorial integrity isn’t influenced by our own business. The opinions, analyses, reviews, or recommendations in this article are those of our editorial team alone.

This month, we decided to cross from the east coast to the west coast to find the best cities in our nation’s most populous state: California.

California has a reputation for a strong business community—it’s home to the film industry in Southern California, the tech industry in Silicon Valley, and wine country in Napa Valley. Combine that spirit of entrepreneurship with strong tourism, great universities, and perfect weather all year long, and you’ve got a recipe for a healthy small business community all across the state!

But where exactly are the best cities for small business in California? We pulled the most-recent Census data to create a Fundera Score for each city.

Drum roll, please! The winners for California are…

#1. Palo Alto, California

Fundera Score of 73.41

At the top of our list is a city that’s synonymous with entrepreneurship. Located in the heart of Silicon Valley, Palo Alto is the legendary home of many startups and technology companies—including HP, Ideo, Nest, Palantir, Tesla, and VMWare. And many other companies operated from Palo Alto during their early days—Facebook, Google, Paypal, and Pinterest.

Palo Alto’s entrepreneurial community is boosted by Stanford University—which continues to attracts and graduates young founders to the community every year.

The city leads our study in Median Household Income, with a whopping average of $147,737. Its score is also helped by a very high average business revenue and an incredibly low unemployment rate of 2.6%. (Keep in mind the current unemployment rate for the US is roughly 4.9%.)

Fun Fact: Facebook operated out of a house in Palo Alto when the company first relocated to California. You may remember it from this scene in The Social Network.

#2. Yorba Linda, California

Fundera Score of 71.17

37 miles from downtown Los Angeles—in Orange County—is the town of Yorba Linda. Orange County’s beautiful landscape and proximity to downtown Los Angeles attracts an affluent group of residents.

We saw this reflected in our data—as Yorba Linda has the 2nd highest median income of any town ($121,102) and a very high owner-occupied housing percentage (82.61%). This economic health provides a great opportunity for small business owners—especially in service-oriented businesses!

Fun fact: President Richard Nixon was born in Yorba Linda—and his presidential Library and Museum are located in the town, too.

#3. Torrance, California

Fundera Score of 68.82

This coastal Los Angeles County town performed well across the board. Torrance ranks 3rd for average business revenue and 2nd for percentage of firms with paid employees (30.85% of firms had paid employees).

In Torrance, much of the economic strength comes from the manufacturing facilities located in the town—like Alcoa Fasteners, Exxon, Honda, and Robinson Helicopters.

Fun fact: Beverly Hills 90210 was filmed at Torrance High School.

#4. San Francisco, California

Fundera Score of 68.09

The tech boom has helped San Francisco become one of the strongest business communities in the U.S. You probably interact with many San Francisco-based businesses on a daily basis: AirBnb, Gap, Levi Strauss, Lyft, Twitter, Uber, Square, and Yelp are just a few of the thousands of companies that call SF home.

But the business environment in San Francisco isn’t limited to high-tech companies! The growth in the area attracts an entrepreneurial breed to all industries in the city, helping improve the small business community overall. San Francisco scored high in our survey with more than 116,803 firms in the city, with combined sales of more than $175 billion! San Francisco’s score is also boosted by strong population growth of 7.32%—growing from 805,195 to 864,816—between 2010 and 2015.

Fun fact: During the Great Depression, not a single San Francisco-based bank failed.

#5. Thousand Oaks, California

Fundera Score of 67.96

Thousand Oaks is located 35 miles northwest of Los Angeles in Ventura County. The town scored well across the board—including having the 3rd-highest median household income ($108,322) and the 2nd highest owner-occupied housing percentage (69.8%).

There are several corporate headquarters and regional offices, including Amgen, General Dynamics, Verizon, and Volkswagen.

Fun fact: Scenes from “Birth of A Nation,” “Tarzan,” and “The Adventures of Robinhood” were filmed in Thousand Oaks.

#6. Santa Monica, California

Fundera Score of 67.22

Located on the western end of Los Angeles is the famous beach town of Santa Monica. The city has a strong economy—boosted by the many companies located within its boundaries and its role as a beachy tourist destination. Hulu, Lionsgate Films, RAND Corp, Toms Shoes, and Universal Music are all are headquartered in Santa Monica.

In Santa Monica, 22.86% of firms have paid employees. The city scored especially well because there are more than 23,153 firms in the city, but the population is only 93,220!

Fun fact: Santa Monica is part of the coast near LA nicknamed Silicon Beach. Many startups and technology companies have opened or relocated to the region over the past few years.

#7. Redwood City, California

Fundera Score of 66.14

Between San Jose and San Francisco is Redwood City. As the Bay Area has boomed over the last decade, Red City has seen a sharp population increase. From 2010 to 2015, its population increased 10.73%—from 76,802 to 85,288!

Redwood City can thank many of its big employers for its continued economic health. Two employers—Electronic Arts and Oracle—employ more than 9,000 people. That’s more than 10% of the community!

Fun fact: Redwood City was an important port town during the Gold Rush.

#8. San Clemente, California

Fundera Score of 65.91

Located down the coast from Yorba Linda is another Orange County city, San Clemente.

San Clemente scored well across the board—but especially well in terms of median household income ($100,187), unemployment (4.2%), and owner-occupied housing percentage (66.48%).

Fun fact: Richard Nixon’s Western White House, La Casa Pacifica, is located in San Clemente.


Fundera’s data for this study came exclusively from the U.S. Census Bureau. There were 3 studies that we looked at in-depth: the American Community Survey, the Populations Estimates Program, and the Survey of Business Owners. In collecting information, we included cities with a population of at least 10,000. Our data looked at cities as defined as “Economic Places” by the US Census Bureau—cities with 5,000+ jobs and 5,000+ people.

We excluded any communities that lacked data for any of the variables that went into the composite Fundera Score.

  • Population Growth, 20%
    • We assumed that positive population growth will bolster the small business environment in a city. An increase in population leads to greater spending, more collaboration, and new opportunity in a given market.
  • Number of Firms, 20%
    • We view a city as more hospitable to business—especially small business—if they have more firms. There’s a positive network effect as more businesses and entrepreneurs settle into a given town.
  • Percentage of Firms with Paid Employees, 10%
    • While having a large number of businesses is important, it’s also important to make the distinction between firms with paid employees and firms without paid employees. Many of America’s small businesses are sole proprietors. And there’s nothing wrong with that—in fact we see it as a great thing! But for this study, we view firms with paid employees as an indicator of stronger economic performance within the town.
  • Average Business Revenue, 15%
    • While quantity is important, we also need an indicator of quality… Average business revenue is included in our score so cities with extremely well-performing companies are rewarded.
  • Median Household Income, 15%
    • We looked at median household income to indicate the economic health of a city’s residents. High median household income indicates more disposable income to spend at small businesses in a given town.
  • Unemployment Rate, 10%
    • Unemployment rate is another indicator of economic health of a town. A low unemployment rate helped a town, while a high unemployment rate lowered this section of the score.
  • Percentage of Homes Owners, 10%
    • We included the percentage of owner-occupied housing to represent community involvement. Our thought process is the more owner-occupied housing, the more residents are likely to be invested in their community for the long-term.

This is the second article in our state-specific series. (Psst, here’s the first, featuring the great state of New York.) We’ll be featuring a new state every month as we work our way across the United States.

Let us know in the comments what state you want us to look at next!

Ben Johnson

Ben Johnson

Contributor at Fundera
Ben Johnson is the former content marketing manager at Fundera. He specializes in data-driven studies and life hack articles to help business owners prepare for the future.
Ben Johnson