As a sole proprietor, can I take a loan from the people who believe in me (frequently)? Will I need to pay income tax on the whole loan or just the interest?

Yes, one can take a loan from an individual such as friends and relatives in proprietorship firm. However, it is always healthy to take a loan from financial institutions to avoid any dispute in future and maintain pure relationship with them. Further, the loan amount is considered as a liability and interest on loan is considered as an expense not an income in any business, hence you need not to pay any income tax on such loan or interest amount because tax is to be paid on income only. Here one can deduct interest as an expense of the business and can reduce the income tax.