The study complied by Informi, the website offering advice and support for small businesses, comes ahead of Small Business Saturday.
It looked at data from the last financial year, focusing on eight criteria across the 63 largest towns and cities in the UK to determine which locations had the best environment for small and medium-sized businesses to succeed.
Categories included the number of new businesses, current business stock, pollution levels and digital connectivity.
Edinburgh performed strongly in having a highly skilled workforce, a high number of business start-ups in the previous year and digital connectivity – appearing in the top 15 in all three categories – but fell one place from the previous study due to the number of business closures, pollution levels and housing stock issues.
Brighton took the crown for the third time, having topped the study in both the 2016 and 2018 studies, while Cambridge rose three places to second.
Aberdeen was ranked 18th in the latest study, Dundee came 30th while Glasgow took 38th spot. London was ranked in ninth place.
Steven Drew, a spokesman for Informi, said: “2020 has been a challenging year for small and medium-sized enterprises throughout the UK, due to the ongoing pandemic and uncertainty over Brexit.
“However, even during a time of uncertainty, there can be great hope that those with a strong, innovative business model and the resilience and flexibility to deal with a variety of economic and social circumstances can have a prosperous future.
“Edinburgh has consistently shown it has a strong environment that is welcoming to entrepreneurs.”