Guide to Starting a Business in Maryland?

The state of small business in Maryland

Here are some quick facts about small businesses in Maryland:

• As of 2021, small businesses constitute 99.5% of Maryland’s overall business landscape, according to the U.S. Small Business Administration (SBA) Office of Advocacy. 
• The state’s 4% unemployment rate is slightly higher than the national average but still fairly low, according to the U.S. Bureau of Labor Statistics.
• While the labor pool is sizable, the hiring process is still competitive. 
• Maryland has more than 618,000 small businesses that together employ nearly half of the state’s workforce, per the SBA Office of Advocacy.

Maryland felt the economic strain brought on by the COVID-19 pandemic. Still, the overall attitude among business owners is optimistic. Over 62% report that their business is recovering, according to research from Bank of America. In fact, many sectors of Maryland’s economy are steadily recovering from the pandemic. The state’s 2021 GDP was $364.24 billion, the 15th highest in the country, according to Statista, and up 3.2% from 2020.  

What can entrepreneurs expect in Maryland?

What opportunities and challenges are business leaders encountering in Maryland? We spoke with Maryland-based entrepreneurs and small business owners to find out the state’s current business landscape. Here’s what they had to say about the upsides and challenges of doing business in Maryland.

1. Maryland has a booming science sector. 

Scientific research and technology flourish in Maryland due partly to the state’s highly educated workforce; 40% of Maryland residents hold bachelor’s degrees, and almost 20% have additional professional or graduate degrees. 

Many of the region’s most innovative startups are supported by – or emerge from – Maryland’s acclaimed universities. Here’s more about the role of Maryland’s prestigious academic institutions in the state’s booming science and tech sectors: 

• Maryland is home to highly regarded educational institutions. Maryland boasts almost 60 accredited colleges and universities, including Johns Hopkins University, the University of Maryland, and Loyola University. Plus, the state leads the nation in Ph.D. scientists.
• University connections encourage innovation. Sherrod Davis, chief operations officer and co-founder of EcoMap, a startup dedicated to providing businesses with customized “ecomaps” of relevant data and resources, explained that the company began as a student-led startup. CEO Pava LaPere started the company as a research project while still a data science student at Johns Hopkins. The company’s head of business development also worked at the Johns Hopkins startup accelerator at the time, and that expertise was vital to the company’s success. 
• Universities foster scientific talent and resources. Tristan Ford, CEO and founder of Vectech, which uses advanced AI technology to monitor and control disease-carrying insect populations, further emphasized the benefit of nearby universities for science-based companies. “Most of our employees are recruited from local universities, so the proximity is helpful,” Ford said. “Many of our research collaborators are located in the region, including labs at the Bloomberg School of Public Health and National Institutes of Health.”

2. Maryland has a supportive community for small businesses.

Maryland entrepreneurs report consistent community and government support for small businesses, including the following resources: 

• Main Street Maryland. Main Street Maryland is a program operated by the Maryland Department of Housing and Community Development. It encourages people to explore and shop at small businesses throughout the state’s historic communities. This effort taps into the state’s robust customer base that values shopping locally and supporting the businesses they love.
• Robust support infrastructure. Businesses outside the retail sector will also find valuable resources in Maryland, said Chris Tomseth, co-founder and chief marketing officer of SkySquad, which assists travelers who are struggling to navigate airports. “The support infrastructure in terms of getting good office space, marketing help and services from vendors like law firms is fantastic,” Tomseth said. Though SkySquad works in airports across the country, it received an especially warm welcome at its home airport, Baltimore/Washington International (BWI), which “encouraged them to get more involved in the BWI community.” 
• TEDCO. The Maryland Technology Development Corp. (TEDCO) is one of several programs designed to nourish entrepreneurs and early-stage businesses. TEDCO provides new tech companies guidance, resources, networking opportunities and more. Davis said TEDCO was an early EcoMap client; together, they developed the Maryland Entrepreneur Hub, which entrepreneurs can access to explore the state’s tech ecosystem.

  “[TEDCO is] always promoting us and giving us opportunities to get in front of their stakeholders, as well,” Davis said. “I can’t say enough good things about what the state has invested to try to catalyze economic and entrepreneurial growth here.”

  “TEDCO has helped us immensely,” echoed Tomseth. “[It was] an early investor and also provided resources such as executive coaching and consulting that saved us money.”

• Networking opportunities. Maryland also offers emerging professionals many opportunities to grow their professional networks through showcases, business incubators and social events. 

3. Maryland is a convenient business location.

Maryland’s prime spot on the mid-Atlantic seaboard offers entrepreneurs a strategic location for their new businesses, for several reasons.

• Proximity to Washington, D.C. The state’s proximity to Washington, D.C., means increased access to government small business grants and research resources. However, access to clients and skilled employees in the D.C. area may be more appealing to small business owners. “There’s a ton of potential customers in the area and a great pool of talent, too,” Tomseth said. 
• Easy access to the region’s big cities. People can easily access the region’s big cities from Maryland by traveling the I-95 corridor or taking a train. This provides businesses with infrastructural travel advantages, thus making it easier to ship and purchase supplies. 
• Attractive place to live. According to the Sperling cost of living index, Maryland has a high cost of living, ranking in the top 10 most expensive states. However, its cities are significantly more affordable than other major cities in the region, making it an attractive option for young professionals who are looking for less-costly city living. Davis said EcoMap has hired young people from Dallas; New York; Washington, D.C.; and Boston who are delighted to find that their money goes much further in Baltimore; some have even bought homes. “It’s a significant economic advantage for [the employees] but also for the company because we’re able to recruit folks who are looking for something different,” Davis said. “Then they get to Baltimore and fall in love with the charm. It’s really done wonders for our company, culturally.” 

4. Maryland tourism has slowed due to COVID-19. 

Tourism has long been a mainstay of Maryland’s economy, with beaches such as Ocean City and attractions like the National Aquarium drawing millions of tourists yearly. Tourism benefits the hospitality industry, including hotels, retail, dining and nightlife. 

However, the COVID-19 pandemic hit Maryland’s tourism sector hard. In 2020, the state’s visitor volume decreased by 40.5%, and travel spending dropped 43%, according to the Maryland Office of Tourism. 

COVID hit the hotel industry particularly hard. The state lost 42,631 hotel-supporting jobs and 13,640 direct hotel jobs, per data from the American Hotel and Lodging Association. Retail stores and restaurants also struggled, particularly in cities and beach towns typically bolstered by travelers during the summer. 

State and city authorities have poured millions of dollars of grant funding into rebuilding and strengthening pandemic-affected sectors. Still, new business owners may not want to enter the tourism industry during this tumultuous period; they should also be wary of other recovering industries.  

5. Maryland has a relatively high cost of doing business.

Businesses operating in Maryland should be prepared to pay fairly steep taxes. Here are some financial factors you should consider when doing business in Maryland:

• Corporate income tax rate. The state’s corporate income tax rate is 8.25%, which is significantly higher than the rates for some of its neighbors to the south. While Maryland’s corporate income tax rate is lower than the 9.99% in bordering state Pennsylvania, Maryland small business owners can still expect taxes to eat up some of their profits and should plan accordingly. 
• Sales tax rate. The state’s 6% sales tax rate is in line with the rates of Maryland’s East Coast neighbors, but it’s a full percentage point higher than the national average. However, individual localities in Maryland can’t charge additional sales taxes, so overall sales tax may remain relatively low in some regions. Entrepreneurs should still study other local taxes before opening their businesses. 
• LLC taxes. When it comes to LLC taxes, limited liability companies face a moderate personal income tax. Maryland utilizes an eight-bracket system to determine income tax rates ranging from 2% to almost 6%, depending on income levels. 
• Maryland’s minimum wage. In January 2022, Maryland increased its minimum wage to $12.50 an hour. It’s on track to continue going up over the next few years, reaching $14 by 2024. Aspiring entrepreneurs should take the higher wages into consideration. While Tomseth noted that the change affects wages for hourly employees, each of our sources agreed that the minimum wage increase hasn’t significantly affected their businesses or bottom lines.

6. It’s challenging to find early-stage funding in Maryland. 

Despite Maryland’s burgeoning startup scene, the state’s tech-sector entrepreneurs often struggle to find early-stage funding because investors are wary of new companies. “Most people will tell you that there’s a bit of risk aversion in the area when it comes to pre-seed funding, especially relative to other similarly sized ecosystems,” Davis said. 

EcoMap successfully raised its pre-seed round by working with an accelerator Techstars brought to Baltimore. However, the process did have challenges. “The biggest barrier is more early-stage funding opportunities,” Davis said, “but it seems like we’re on the right track.” 

Finding early-stage funding in Maryland isn’t impossible, but it might require networking and creativity. Ford also suggested that Maryland businesses that are struggling to find early-stage funding take advantage of remote work’s prevalence to expand their funding horizons.

“Remote work and meetings through Zoom are now normal, so there’s no reason not to engage with investors that were traditionally limited to major startup hubs like Silicon Valley or New York City,” Ford advised.

The founders we spoke with also benefited tremendously from local and city-level resources, like UpSurge Baltimore, which focuses on supporting local startups with diverse leaders per the Equitech model. Tapping into resources like this can help connect small business owners to funders who invested in their specific community. 

Frequently asked questions about starting a business in Maryland

Here’s what you need to know about starting a business in Maryland: 

How do you start a business in Maryland?

Starting a business in Maryland requires selecting a business structure and filing the appropriate tax and employer identification documents.

Here are resources for getting started:

• Unsure of what type of business you want to start? Visit our list of great small business ideas.
• Want to learn more about how to choose the best legal structure for your business? Find out about the various types, including sole proprietorships, partnerships, limited liability companies (LLCs) and various corporations. 
• Need startup funding? Check out our reviews of the best business loans. 
• To ensure you manage your money wisely, learn about the best accounting software for small businesses.

Do you need a business license in Maryland?

Maryland state and local governments require many, but not all, businesses to have a business license. Visit the Maryland OneStop Portal to find out if you need to apply for a business license and file any applications and documents. 

How do you register your business name in Maryland?

Registering a trade name or business name in Maryland begins with registering your business with the state. Visit Maryland Business Express to register your business name and learn more about the requirements. The filing fee is $25.

Do you need business insurance in Maryland?

Regarding small business insurance in Maryland, businesses with at least one employee must provide workers’ compensation insurance. If a business uses vehicles during its operations, it is also required to maintain a commercial vehicle insurance policy. Learn more about insurance requirements from the Maryland Business Express insurance page.

Resources for small businesses in Maryland

If you’re a small business owner in Maryland and you’re looking for resources to help you move forward, here are a few organizations to consider.

Maryland SCORE

SCORE’s volunteer business professionals and expert business mentors give counsel and guidance to entrepreneurs who are looking to start or expand their businesses. The services are entirely free and volunteer-driven. Here are some of the chapters in Maryland: 

• Mid-Maryland SCORE
• Greater Baltimore SCORE (main office)
• Southern Maryland SCORE

U.S. Small Business Administration District Offices

The SBA offers financing, grants, consultations and counseling services. There are also opportunities to apply for federal government contracts through the SBA and avenues for obtaining assistance in the wake of natural disasters. Learn more by visiting the U.S. SBA District Office.

Maryland Small Business Development Centers

Maryland hosts several small business development centers. Each is dedicated to supporting the development and retention of small businesses and to helping entrepreneurs craft business plans and navigate the state’s tax code. Find your region’s small business development center via the Maryland SBDC Network.

Maryland Technology Development Corp. (TEDCO)

TEDCO provides new technology and life-science startups with various resources, including funding, entrepreneurial development and coworking spaces. It offers grants, pitch guidance and executive training, and can help early-stage companies build support networks. 

Doing business in the Free State 

Despite having somewhat high business costs, Maryland is a supportive home for new companies. While it may take some time to find early investors, the active and welcoming tech scene can help you build your startup, and the community is eager to support small businesses. Your business can succeed in Maryland, especially if you tap into state and local resources. 

Adam Uzialko contributed to the reporting and writing in this article.