Emotional branding has become a critical strategy for SMEs seeking to build sustainable customer relationships in increasingly competitive and digitalized markets. However, existing studies remain fragmented, necessitating a systematic synthesis of current knowledge. This SLR aimed to examine the conceptual foundations, mechanisms, methodologies, and strategic importance of emotional branding in SMEs, addressing four research questions related to what, how, and why the phenomenon operates. This review followed PRISMA guidelines and analyzed literature from Scopus, Web of Science, ScienceDirect, and Google Scholar, covering publications from 2020–2025. After applying inclusion and exclusion criteria, 52 studies were selected and analyzed using thematic and narrative synthesis approaches. The findings revealed that emotional branding is primarily characterized by dimensions of emotional connection, trust, engagement, experience, and loyalty. It influences customer relationships through mechanisms such as trust-building and engagement, ultimately enhancing loyalty and performance. Quantitative methods dominated the literature, while qualitative insights highlighted authenticity and storytelling. The review also identified gaps, including limited longitudinal and cross-cultural research. This study concludes that emotional branding is a strategic capability for SMEs and provides directions for future research, managerial practice, and policy development.