The formation and development of business environment of small businesses in the region is of paramount importance in modern conditions. Undoubtedly, the development of small business in the region contributes to the higher competitiveness of the products, the increase of production efficiency in the region, the increase of profitability, and so on. The state is trying to develop special programs to support the small business in the region, creates favorable conditions for its development, improves the regulatory framework. However, the integrated and effective system of formation and development of business environment of small businesses have yet to be established at both the Federal and regional levels. We believe that the development of small business in the region contributes to the economic recovery not only in the region but in the country in general. The aim of the research is to improve the mechanism of formation and development of business environment of small businesses in the region. The main objectives of this study are: to conduct a comparative analysis of the number of enterprises by regions of the Russian Federation in the dynamics involved in small business, to analyze the factors impeding the development of business environment of small businesses in the region, to develop a network model for formation and development of the favourable business environment of small businesses in the region. The article gives a comparative analysis of the state of small business development at the contemporary stage. In addition, some of the factors hindering and facilitating the formation of business environment for small business are studied. The necessity of changing the mechanism of formation and development of business environment of small businesses in the region is substantiated. The network model for the formation and development of the favourable business environment of small businesses in the region is developed. The results of the study can be used in a variety of small businesses in the organization of their activities.