Small and medium sized enterprises are one of the key factors in the dynamic economic development and the reduction of the high unemployment rate, especially among the young and hard-to-employ categories in the society. These enterprises contribute to the more efficient resource allocation because they apply work intensive production methods which provides balance establishment between higher workforce availability and lack of capital. There is a special importance of the production oriented SMEs in Serbia because the economic policy of the transition period favoured service sector development. That is the reason for the results in SMEs and entrepreneurship sector to be far lower than expected, followed by insolvency, high indebtedness and unfavourable sorces of funding dominated by too expensive bank loans. The economic policy in the future should provide a favourable business environment for SMEs and entrepreneurship sector growth and development, as well as raising their competitiveness in relation to companies from the developed economies.