COVID-19 had a considerable negative impact on the economy of Azerbaijan, with SMEs being one of the major victims from the economic perspective. Economic sectors were affected to a different extent by the pandemic and lockdown measures. As a result of lockdown measures, many SMEs closed their operations with their employers not being paid or left without pay. Although the government provided essential support to small and medium-sized businesses, the share of closed businesses was high. Over two years since the beginning of the pandemic, a measures toward the improvement of the business environment was done. The share of operating and newly created SMEs increased along with legislative incentives adopted for their development.