This study examines the effect of innovation activities of SMEs on the cost of capital, using a longitudinal panel data of KSE and KOSDAQ. We find that patents of SMEs, a proxy of innovation activities, significantly reduce the cost of debt capital and such effects are accentuated where firm age is young. These findings suggest that innovation activities play a vital role in mitigating information asymmetry and uncertainty in the capital market, which in turn helps SMEs alleviate their cost of debt. The results of this study provide several theoretical and practical implications.