Abstract: The small scale industries have a very important and effective role in the developed countries generally and in developing countries especially because it is considered the backbone of their economies. In respect of this, the main purpose of this study is to identify the problems and prospects of small enterprise in Addis Ababa sub-city. To do this, data were collected from both primary and secondary sources. The main instrument of data collection was the questionnaire and supported by interview. The data were presented in tables as frequency, distribution in the data analysis; the techniques of percentages frequencies were used. The empirical studies elicit major challenges which seem to affect performance of SSEs in sub-cities which include: inadequate finance, inadequate infrastructures, poor management practices, multiple taxation and capital shortage in that order, are the major challenges affecting small scale businesses in Ethiopia. The researcher suggested that the challenges and problems of the SSEs in Ethiopia are having many centers and hence can only be effectively tackled by a multi-dimensional and concerted approach by all stakeholders i.e. the governments and their agencies, banks, regulatory authorities, tax authorities,), the employees of SSEs, multilateral and bilateral agencies and donors.