Abstarct: Increasing competition between companies in recent years, companies have increased the likelihood of bankruptcy. This paper tends to introduce a system dynamic model to explain the interrelation of the main SME contractor’s financial subsystems and to investigate their dynamic behavior causing changes to their bankruptcy propensity. The model applied financial data appeared in the Cash flow statement of the contractor company in construction industry. For selecting the important factors and ratios we have utilized Analytic Network Process (ANP) to analyze the decision making process of 20 experts in managing position. The result shows that fund raising methods, interest of projects and delays in payment of invoices play an important role in financial situation of SME. Using dynamic modeling, managers will be able to predict the behavior of the company before its bankruptcy and adopt necessary measures to prevent losses. The assessing probability of failures in SME s from this model can then be utilized against the usual estimate baxsed only on financial ratios in static models.