The principal aim of this paper is to test how firm characteristics affect Small and Medium Enterprise (SME) capital structure. We carry out an empirical analysis over a panel data of 6482 non–financial Spanish SMEs along the five-year period 1994–1998, modelling the leverage ratio as a function of firm specific attributes hypothesized by capital structure theory. Our results suggest that non–debt tax shields and profitability are both negatively related to SME leverage, while size, growth options and asset structure influence positively on SME capital structure; they also confirm a maturity matching behaviour in this firm group.