Introduction. The effective functioning of the market economy, i.e. the smooth implementation of its coordinating and initiating the production efficiency skills, due primarily to the development of competition. The necessity of formation of the competitive environment due to the fact that competition creates the necessary conditions for economic freedom of consumers, providing a wide range of products from different manufacturers sold by many companies, determines the user priority. Theoretical analysis. The foundations of the theoretical analysis is to examine the status of small and medium business as the basis of competitive relations in the modern Russian economy. Results. Practice shows that small and medium business is concentrated in certain sectors of the economy, hence the development of competitive relations is more active in these sectors. Also small business is an institution that provides employment. Also according to the survey of the analytical center under the Government of the Russian Federation the state of competition in the Russian markets can be evaluated as moderate: 48% of respondents indicated high or very high competition for their business. The most acute problem of increasing competition is observed among entrepreneurs engaged in trade and in transport services, construction and real estate. Intangible service sector also remains an area of development of small and medium business in the country. Conclutions. The development of all types of small and medium business today is impossible without the active participation of the state in this process. In recent years there has been a reduction in funding in 2015, up from 18.5 billion rubles in 2016 12.3 billion RUB. the Consequence of this phenomenon is the weakening of competition on the domestic market and increase monopolistic tendencies.