We present an occupational choice model with risk-averse agents who are heterogeneous in terms of skills and wealth in a setting with financial frictions.  We show that high-income individuals and middle-income individuals endowed with a balanced portfolio of skills upgrade their skills so the resulting portfolio of skills is more balanced and choose entrepreneurship, while middle-income individuals endowed with an unbalanced portfolio of skills and low-income individuals specialize in the skill in which they have an absolute advantage and choose paid employment. Deeper financial development, a more balanced portfolio of skills, lower entrepreneurial risk and a higher liquidation value result in more entrepreneurship and higher welfare, while wealth redistributions and financial subsidies to entrepreneurs have an ambiguous effects on welfare.