Abstract: Service sector in Sri Lanka plays a major role in the economy by contributing more than 55% of the Gross Domestic Production. Especially in under developed countries, they are encouraging and promoting small business to cater as source of income generation, employment creation and maximum utilization of resources. The growth and the survival of these small business depend on one of the important factor; the quality of the service offered. It helps these businesses to retain and attract customers by fulfilling their expectations. This study focus on studying the service quality of service providing SMEs and how it will help to gain the competitive advantage and leads to business performance. This paper contains the theoretical background derived from the existing literature in order to construct the research framework for the study.