This study examines how legal form shapes credit risk outcomes in peer-to-peer (P2P) crowdfunding markets, challenging the conventional assumption that incorporation necessarily reduces borrower risk. Drawing on agency and signaling theory, the study argues that the unlimited liability embedded in sole proprietorships may function as a credible commitment mechanism under conditions of information asymmetry. Using 928 SME loan applications from Fundaztic, the study estimates a partial proportional odds model to account for heterogeneous effects across ordered credit risk categories. To mitigate observable selection bias, propensity score matching with a 0.2 standard deviation caliper is implemented to generate a balanced sample of comparable borrowers. The findings reveal a robust entrepreneurial credit paradox: sole proprietorships are significantly less likely to be classified into higher credit risk categories than otherwise similar private limited firms. This relationship remains consistent across alternative specifications and matched samples, even after controlling for loan-specific and macroeconomic factors. In contrast, firm age and economic sector exhibit limited explanatory power in platform-assigned credit risk assessment. Overall, the findings suggest that personal liability may operate as an economically meaningful form of non-contractual discipline in digital lending markets, with implications for entrepreneurial finance, debt-based crowdfunding, and SME credit evaluation policies.