The Small Medium Enterprises of Knitting are small business actors who produce knitted clothes such as cardigans, sweaters, and jackets. The SME knitting actors currently operated their production on the knitting industries center that become their residence and the source of their income. The number of SME knitting actors has decreased every year due to the weak business capabilities. The improvement are needed to increase the capabilities to run business with the effective strategy. This paper aims to develop strategy to increase competency and business capability for SME of knitting actors. The method using SWOT analysis which describes their strength, weakness, opportunities, and threat in existing business. The result shows that the SME knitting business position is in third quadrant which is Weakness-Threat (WO) strategy. It can be concluded that it is essential to repair their weakness or minimize weakness and to avoid the business threat. The strategy for developing capabilities of the SME knitting is by minimizing weakness with the priority of ensuring the continuous supply of fabric material, upgrading the obsolete machine, and improving labor skill. The strategies to avoid business threat especially from imported clothes and competitors are improving the quality of knitting clothes, and running the effective production to press the production cost.