The economic condition of Serbian republic is still unfavorable. The volume of production is at very low level, i.e. it is only the half of volume that was achieved in 1989. Purchasing power of citizens is approximately ten times lower than in European Union, which shows the need for involving important changes in business environment of small and medium enterprises and they should be the engine for economic development of Serbian republic. Moving and increasing of economic activity and decreasing of unemployment rate will depend on level of SME sector development, and that is the reason why this sector should be the focal point of economic policy of Serbian republic.