ABSTRACTSmall and medium-sized enterprises are considered an engine of growth for developing economies. The importance of this sector cannot be overlooked due to its utmost importance and contribution to GDP growth and job creation. The SME sector in Pakistan is facing a number of problems that are a hindrance to their growth. The main obstacles to SME growth include financial constraints, regulatory and fiscal constraints, infrastructure constraints and human resource constraints. These four factors are deteriorating the growth of SMEs in Pakistan. The sample companies were selected from the trading, manufacturing and service sectors of similar size and capacity. The problems faced by SMEs are among the four main obstacles indicated. Less technical and professional training of owners, difficulty in entering the business, high rents of commercial premises, high-cost structures, high average debt collection times and electricity shortages are key issues that have been reported by entrepreneurs. Other problems include lack of formal books of accounts, accounting training, use of computers, bank accounts, awareness of banks' lending products, low loan acceptance rate, excessive government regulations, hostile tax authorities , competition from Chinese products, lack of technical and professional resources, training facilities and inadequate road and communications infrastructure. Various dimensions influencing the growth rate of SMEs have been revealed in this study. Regulatory constraints and infrastructure constraints have been identified as major impediments to the growth of the SME sector. Future research can be conducted by calculating the financial losses suffered by individual businesses and the country at large due to obstacles faced by SMEs. INTRODUCTION...... half of the paper ......Business Research Papers, 5, 85-95. Farooq, M. (2006). Credit guarantee system for SMEs. IBP – the knowledge Institute journal, July 2006, 61-66. State Bank of Pakistan (2009). Prudential regulations department for financing, banking policy and regulation of small and medium-sized enterprises. Fiscal Year 2009 Budget Unreleased (2009, Feb. 11). The news. Excerpt from the survey http://www.thenews.com.pkBaseline, a roadmap for the development of the SME sector. (2010, May 19). The nation. Retrieved from http://www.nation.com.pkState Bank of Pakistan, SME Finance Department (2010, March). Quarterly report on development finance. Retrieved from http://www.sbp.org.pk/smeReserve Bank of India, (27 August 2009). Annual economic review. Retrieved from http://www.rbi.org.in/scriptsSmall and Medium Enterprise Development Authority (2007). SME Policy 2007. Retrieved from http://www.smeda.org