Small Business Credit in India: What the 2025 Spotlight Report Tells Corporate India, Lenders and SMEs

India’s small business ecosystem has entered a phase of structural maturation. The latest Small Business Spotlight Report offers one of the most comprehensive data-backed views of how credit, risk and formalisation are evolving across enterprises and sole proprietors with credit exposure of up to ₹5 crore. For corporate India, BFSI leaders, MSMEs and industry associations, the report is less about headline growth numbers and more about what is changing beneath the surface of India’s credit economy.

At an aggregate level, small business credit outstanding stood at ₹46 lakh crore as of September 2025, growing 16.2 percent year-on-year. Active loan accounts crossed 7.3 crore, up nearly 12 percent. These are not trivial figures. They point to a segment that is no longer peripheral to India’s growth story, but central to it. Yet the real signals lie in the composition of borrowers, lender behaviour, risk quality and geography.

Sole proprietors now define the system

One of the most important takeaways from the report is the overwhelming dominance of sole proprietors. They account for nearly 80 percent of total outstanding credit and close to 90 percent of borrowers. This has deep implications for policy, underwriting and business strategy. India’s small business economy is not driven primarily by incorporated SMEs but by individuals running businesses that often straddle personal and enterprise balance sheets.

Within this universe, the fastest growing cohort is what the report defines as “sole proprietors with entity presence”. This overlap segment grew by over 20 percent year-on-year, significantly faster than enterprises or pure sole proprietors. The driver is asset-backed credit, particularly loan against property. This indicates a behavioural shift. Entrepreneurs are increasingly using personal assets to access formal capital, then graduating into enterprise-level borrowing. For lenders and policymakers, this migration pathway is now the most critical bridge to formalisation.

What this means for banks and NBFCs

From a BFSI perspective, the report clearly shows a rebalancing of market power. Private banks continue to dominate enterprise lending, especially working capital, where risk visibility and cash flow linkage are stronger. Public sector banks remain significant but have gradually ceded share. The most notable expansion, however, is by NBFCs.

NBFCs now command over 41 percent of sole proprietor credit, driven by small-ticket loans, faster turnaround and deeper penetration beyond top cities. This has expanded access, but it also introduces new risk dynamics. While overall asset quality has improved, with PAR 91–180 days declining to about 1.4 percent nationally, NBFC portfolios have seen a modest uptick in stress. The data suggests that growth has been achieved, but at the cost of higher monitoring intensity.

For banks, the message is twofold. First, enterprise lending remains relatively stable and lower risk, validating traditional underwriting frameworks. Second, the real growth opportunity lies in building hybrid models that can capture sole proprietors early and support their transition into formal enterprises without ceding the segment entirely to non-bank lenders.

Credit growth is broadening geographically

Another structural shift highlighted in the report is geographic diffusion. While Maharashtra, Tamil Nadu, Uttar Pradesh and Gujarat continue to anchor absolute credit volumes, the fastest growth is increasingly visible in smaller states and non-metro regions. Beyond the top 100 cities now account for the largest share of credit across borrower segments, particularly among sole proprietors.

This dispersion is not merely geographic. It reflects the success of digital onboarding, GST-linked data trails and targeted government credit schemes. States such as Telangana, Andhra Pradesh and parts of eastern India are seeing double-digit growth with relatively stable delinquency. For corporates with extended supply chains and vendor ecosystems, this means that credit resilience is no longer confined to metro-based MSMEs.

Odisha as a case study in decentralised growth

The report’s state focus on Odisha offers a useful microcosm. Small business credit in the state grew over 17 percent year-on-year, outpacing the national average. Aspirational districts recorded growth above 22 percent with better-than-average asset quality. Public sector banks dominate lending, but NBFCs are expanding rapidly in under-penetrated districts.

What stands out is the improving risk profile. The share of very low-risk borrowers among small enterprises in Odisha rose sharply over two years. This suggests that policy support, digital infrastructure and cluster-based development can materially improve credit outcomes even in less industrialised regions. For industry associations and state governments, Odisha’s experience underscores the value of aligning credit policy with local economic structure.

Asset quality is improving, but selectively

Perhaps the most reassuring signal in the report is the improvement in portfolio quality. Across borrower segments, PAR levels have declined compared to 2023. Enterprises consistently show the lowest stress, while sole proprietors remain more vulnerable. Importantly, the share of very low and low-risk borrowers has increased, reflecting better underwriting, wider use of bureau data and stronger digital footprints.

However, the data also points to emerging fault lines. Unsecured business loans have grown sharply, particularly among sole proprietors. Younger borrowers and certain service segments show early signs of stress. This is not alarming yet, but it is a reminder that credit expansion must be accompanied by disciplined risk pricing and monitoring.

The larger picture

The 2025 Small Business Spotlight Report confirms that India’s small business credit market is no longer defined by scarcity of capital alone. It is defined by who gets capital, at what stage, and under what risk discipline. As India pursues its broader economic and trade ambitions, the resilience of this segment will play a decisive role. The data suggests cautious optimism. Growth is strong, quality is improving, and the centre of gravity is shifting from a few large hubs to a more distributed, formalised and resilient small business economy.