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ABSTRACT This study aims to analyze the effect of innovation on business performance. This research is motivated by the phenomenon of the important role of SMEs in national economic growth, should be accompanied by increased business performance, but SMEs are faced with the challenge of losing competition in the global market because low innovation. The method used in this study is an explanatory survey, with data collection through questionnaires and documentation. The population is SMEs in the processing industry sector in West Java, Indonesia, with a sample size of 346 respondents. Data collection used 1-5 scale questionnaires Data analysis using SEM. The results of the analysis show that the research model is acceptable, which means that innovation has a positive effect on business performance. The implication of this research is that business performance can be improved through product innovation, process innovation, and distribution innovation.