The study examined the relationship between government policies and financial performance in small and medium enterprises (SMEs) in Iraq. The study aimed at establishing the relationship between government policies and financial performance of SMEs. In the Republic of Iraq, it is estimated that 99% of the business entities are SMEs.They also contribute to GDP and provide employment. Notwithstanding the recognition of the important roles SMEs play in Iraq, their development is largely constrained by a number of factors, such as the existence of laws, regulations, and rules that impede the development of the sector. The study provided some relevant recommendations to policy makers, development agencies, entrepreneurs, and SME managers to ascertain the appropriate strategy to improve the SME sector in Iraq.