CRIF–SIDBI report shows surge in first-time borrowers as small business credit hits ₹46 lakh crore

India’s small business credit market is drawing a growing number of first-time borrowers, signalling deeper formalisation even as lending volumes continue to rise, according to the latest CRIF–SIDBI Small Business Spotlight Report (December 2025).

As of September 2025, 23.3% ofsmall business borrowers

were new to credit, while 12% were borrowing for an enterprise for the first time. This influx of new borrowers comes alongside a 16.2% year-on-year expansion in total small business credit exposure, which has reached ₹46 lakh crore.

The report tracks businesses with loans of up to ₹5 crore and finds that credit growth is no longer confined to established firms or large urban centres. Active loan accounts rose 11.8% to 7.3 crore, supported by policy measures and targeted government credit schemes for MSMEs.

Sole proprietors continue to anchor the ecosystem, accounting for nearly 80% of total credit exposure and close to 90% of borrowers. However, the fastest growth is emerging among sole proprietors with a formal enterprise footprint. Credit exposure in this segment grew 20% year-on-year, driven largely by loans against property, indicating a gradual shift from informal borrowing to asset-backed formal finance.

Lender participation is also broadening.

Private banks remain the largest enterprise lenders, followed by public sector banks, while NBFCs have strengthened their role among sole proprietors. NBFCs now account for over 41 percent of lending in this segment, reflecting their expanding reach into smaller and under-penetrated markets.

The structure of borrowing highlights distinct needs across segments. Working capital loans make up nearly 57% of enterprise credit outstanding, underlining ongoing liquidity requirements. Among sole proprietors, loans against property dominate, followed by business and commercial vehicle loans. Unsecured lending rose sharply by 31% year-on-year, even as lenders maintained overall portfolio discipline.

Geographically, credit continues to deepen beyond the largest cities. While Maharashtra, Tamil Nadu, Uttar Pradesh, and Gujarat lead in overall portfolio size, states such as Telangana, Andhra Pradesh, and West Bengal posted faster growth. Credit penetration beyond the top 100 locations increased notably in Uttar Pradesh, Madhya Pradesh, Karnataka, and Tamil Nadu.

Asset quality trends add to the positive picture. Loans overdue by 91 to 180 days declined to about 1.4^ as of September 2025, down from 1.7% two years earlier. The share of very low- and low-risk borrowers increased across both enterprises and sole proprietors, supported by improved underwriting practices and wider use of digital data.

A closer look at Odisha stresses this shift. Small business credit in the state grew 17.2% year-on-year to ₹96,000 crore, exceeding the national average. Credit growth in aspirational districts crossed 22% and coincided with improving delinquency trends, suggesting that credit expansion is reaching newer regions without materially weakening risk profiles.