Many papers have argued that income inequality is a result of historically shaped inequalities of opportunities transmitted across generations through education, social position, place of birth, etc.1 Frictions in the credit market generate entry barriers, offer fewer opportunities for the poor, and cause the borrowing rate and thus the access to credit to depend on wealth and social status. Poor individuals under-invest in both physical and human capital because of limited ability to borrow. As a result, long run living standards depend on initial inequality which may persist or even be magnified over time. What happens when inequality is not transmitted across generations? Can credit market imperfections still cause amplification of income inequality? How does the income inequality depend on the severity of credit market imperfection and per capita income? The main goal of this paper is to argue that imperfections in the credit market can be responsible for income inequality even when intergenerational transmission mechanism of income inequality is not present. When entrepreneurs are subject to a minimum investment requirement and entrepreneurs’ future revenue is not fully pledgeable for debt repayment, then the highest interest rate entrepreneurs can credibly offer to depositors depends not only on entrepreneurs’ future revenue but also on entrepreneurs’ net wealth. This dependence creates an entrepreneurial rent which has direct and indirect impacts on income inequality. On the one hand, entrepreneurial rent magnifies income inequality because it directly affects the capital income earned by old agents. On the other hand, entrepreneurial rent magnifies income inequality because it distorts young agents’ labor supply decision and thus indirectly affects labor incomes earned by borrowers and lenders. The logic of endogenous inequality described in this paper does not suggest that the transmission of inequality across generations is unimportant. On the contrary, it suggests that income inequality may exist in a society in which inequality is not transmitted across generations and inequality transmitted across generations may be amplified to create larger observed income inequality.