We use firm-level data to document that private businesses experience large fluctuations in their profit shares. These are due to large, fat-tailed, and transitory changes in output that are not fully accompanied by changes in their inputs. We interpret this evidence using a model of entrepreneurial dynamics. Because firms can limit their exposure to risk by operating at a smaller scale, our model predicts large macroeconomic losses from uninsurable business risk, much larger than those stemming from credit constraints. While self-financing allows entrepreneurs to quickly overcome credit constraints, even wealthy entrepreneurs remain considerably exposed to risk.

We analyze the role of nonbank lenders in the transmission of monetary policy using data on the universe of unsecured credit to firms and households in Denmark. Nonbanks increase their credit supply after a monetary contraction, both relative to banks and in absolute terms. The increase in nonbank lending is financed through increased long-term debt. A model with segmented debt markets featuring differential investor rate sensitivities rationalizes these findings. Nonbank credit insulates corporate investment and household consumption from monetary contractions, with positive spillovers extending beyond nonbank clients through industry and geographic channels.