There is a raft of factors that affect the capacity of local construction firms in Ghana, particularly those in the smaller contractor classifications. These factors render small to medium enterprises (SME) ineffective in administration of construction processes. As a result, these firms are not able to match with growing demands of stakeholders and end up collapsing. In this article, factors affecting the capacity of SME building construction firms in Ghana were empirically ascertained. This involved a review of published research works on the construction industry, generally in both developed and developing countries focusing on Ghana. Both qualitative and quantitative research methods were employed while conducting the study. The data obtained during the research were analysed using descriptive statistics and factor analysis. It emerged from the study, among other factors, the following as key factors affecting the financial, managerial and technical capacities of SME construction firms in Ghana: delay in payment for work done, limited access to finance, non-payment of interest on delayed payments and lack of fair competition. It is therefore recommended that if there is any policy that is directed at building the capacity of the SME Construction firms in Ghana, it should endeavour to mitigate the aforementioned factors.