Under financing frictions, negative shocks have a lasting impact on credit intermediaries' net worth and lending capacity. Anticipating tighter credit-supply conditions and the resulting difficulty in financing ongoing capital growth, firms' current incentives to borrow and create productive capital weaken. Such credit-demand contraction reduces intermediaries' profitability, delays their rebuilding of net worth, and traps the economy in downturns. This paper develops a model of credit cycles featuring seemingly stable booms, persistent crises, and transitions driven by intermediaries' state-dependent leverage choices. Unlike in the fire-sale frameworks (e.g., Kiyotaki and Moore, 1997), credit is not tied to secondary-market prices of collateral assets.