Abstract: The external business environment greatly determines the performance of SMEs. The literature shows that innovation practice as a mediator between business environment and the performance of SMEs remains limited. A total of 425 sample owner-managers of SMEs were participated. CB-SEM was used for data analysis. Innovation practice has a low partial mediation effect in the nexus between competition intensity, government support, credit accessibility, and the performance of SMEs. Hence, strong and consistent policy directives should be developed to change the business-as-usual orientation of SMEs in Ethiopia. Additionally, this study contributes a novel insight that adds a body of knowledge to the extant literature on the field. Keywords: Performance of SMEs, Innovation Practice, Competition Intensity, Government Support, Credit Accessibility