The study examined the impact of capital structure determinants on the borrowing behavior of SMEs in Pakistan. Different theories of capital structure are reviewed such as trade-off theory, pecking order theory, and agency theory in order to formulate testable propositions concerning the determinants of capital structure of SMEs. The analysis is performed using panel data techniques for a sample of 43 SMEs of Pakistan during 2010-2014. This research empirically proved that capital structure determinants such as Age of a firm, asset tangibility and growth are positively associated to short term debt but insignificant, While profitability, liquidity, and size of a firm are negatively associated and significant. On the other hand long term debt is positively associated with age of a firm, size, asset tangibility and negatively associated with growth and liquidity. Coefficient of size, age of a firm, liquidity and asset tangibility are significant and that of growth and profitability are insignificant. The results reveals that most of SMEs in Pakistan prefer to use short term debt instead of long term debt. Supervisor: M.Ali Kemal