The exposure of firms and financial institutions to aggregate shocks is a key driver behind financial crises. This paper studies how idiosyncratic uninsurable labor income risk faced by lender households influences the concentration of aggregate risk on borrower entrepreneurs’ balance sheets. I propose a tractable model of households’ idiosyncratic labor risk and embed it into a workhorse business cycle framework with informational asymmetries in entrepreneurial financing and privately optimal contracting. The presence of idiosyncratic labor income risk affects aggregate fluctuations and risk concentration through two explicit channels: i) endogenous increases in the share of human wealth in households’ total wealth increase realized idiosyncratic consumption risk, given labor income risk; and ii) cyclicality in the idiosyncratic labor income risk itself leads to cyclicality in realized consumption risk. In the calibrated model with nominal rigidities, both channels make households less reluctant to bear aggregate risk, resulting in its higher concentration on the balance sheets of entrepreneurs. Quantitatively, the former channel plays a small role, while empirically plausible countercyclicality in idiosyncratic labor income risk can lead to considerable amplification of aggregate volatility, reminiscent of conventional financial accelerator dynamics.