The article is to answer the question of whether the years 1997-2000 saw an improvement in SME innovativeness in comparison with the years 1992-1997, and of what factors were contributing to or hampering the introduction of innovations to enterprises. An analysis of factors influencing the innovation activity is preceded by a discussion on the notions of innovation, innovation activity and innovativeness. The study points out that in the years 1997-2000 the innovation activity of the surveyed SMEs was higher than in the years 1994-1997 thanks to the increased number of implemented product innovations. Education of company managers and company size were among the factors contributing to a rise in innovation activity of firms in the analysed period. Besides, larger firms with short market experience, managed by well-educated males showed a higher innovation activity than other firms. Compared to the 1992-1995 period, the years 1996-2000 experienced a change in the hierarchy of innovation-hampering factors towards increased significance of factors involved with the government policy. In 1997-2000 the shortage of funds, lack of innovation-oriented policy of the government, high implementation risk and scarce borrowing facilities were among the major factors hampering the introduction of innovations.