04 - 09 - 2026

“The Rise of Solo Entrepreneur” — Why India’s MSME owners are bypassing entity credit?

One interesting perspective struck me as I glanced through the latest TransUnion CIBIL–SIDBI MSME Pulse: individuals, borrowing in personal capacity for business purposes, now make up 28% of India’s ₹65.8 lakh crore in outstanding commercial credit.

More revealingly, balances for individual business borrowers grew 1.8 times between March 2023 and March 2026, compared with 1.5 times for entity borrowers. That is equivalent to roughly 22% annual growth for individuals against 14% for enterprises.

As it is the case, individual entrepreneurs account for the majority of loan-against-property balances, commercial vehicle loans and unsecured business lending. But now, those who finance a delivery van or a shop renovation on a personal loan, are steadily becoming the median MSME borrower – and no longer an aberration.

Then, I read the comment of Bhavesh Jain, MD and CEO of TransUnion CIBIL who said, “entrepreneurs and their enterprises are deeply connected, particularly in the early years of business growth.” Point taken but it talks more about a relationship, not about the choice.

Does it mean that there is very little alternative?

Even if you admit for a moment that higher individual borrowing reflects the core operational aspect of small businesses – then, by all means, the growth should have been visible, evenly across the ticket sizes. But here it doesn’t.

Go through SIDBI’s FY2024–25 Annual Report and it shows the broader picture of the MSME credit market; the bank credit is up 14.8% to ₹31.3 lakh crore, and delinquencies are at a five-year low of 1.79%.

Yet SIDBI’s own sector research, conducted with Crisil, estimates the addressable MSME credit gap stands at roughly 24% of debt demand — nearly ₹30 lakh crore – widening further for services businesses and women-owned enterprises. It is staggering to think that a market, growing 14.8% a year, is still leaving behind a quarter of demand, unmet.

A deeper scrutiny of the MSME Pulse data shows exactly where it doesn’t reach: even though the entity credit in the ₹2–10 lakh band grew just 5% CAGR over three years – the slowest for any segment, alarmingly, the new-to-credit (NTC) applicant group originations fell from 52% in FY23 to 42% in FY26.

Does that mean proprietors are comfortably choosing personal credit over entity credit? No, it’s actually, the entity channel becoming narrowed for borrowers who may need it the most. Well, does that mean a bureau report – built on sales data and analytics to lenders on both sides of this line – will have a limited incentive to frame its own top-line number as an access problem?

But is there an issue with individual borrowing getting preference over entity credit? Personal-capacity borrowing can unlock finance, but it transfers business risk directly to the owner. A failed venture may damage the entrepreneur’s personal credit profile, expose household property and blur the boundary between family finances and business liabilities. The risk is not evenly distributed.

However, it is not a systemic issue -at least as of now; the overall commercial-credit quality remained stable at 1.8% delinquency in March 2026, but unsecured business loans to entities had a delinquency of 7.2% (while the ₹2 lakh–₹10 lakh entity segment recorded 5.6%).

Early delinquency was 2.9 times higher for unsecured entity loans and 2.1 times higher for the smaller-ticket entity segment than the overall entity benchmark. Thus, we may not conclude that “entrepreneurs prefer personal loans’ too emphatically.

The truth is that India’s credit system is following the entrepreneur – before it fully recognises – the enterprise. Personal borrowing – even though a good choice at times due to ‘thin files’, it is also due to the quicker disbursal potential and lesser collateral demands. That leaves the question to the policymakers – does the route of personal-capacity credit seem an efficient bridge to replace a harder-to-obtain entity credit?

The logic of ‘deeply connected” is a comfortable story for an industry report to tell. It is not, on its own, an answer to why the connection is deepening now, at this pace, in this segment. There is a clear borrower behavioural and composition shift – but no definitive explanation for the motivation.

By Sreevalsan M