#AI #ChatGPT #Grok: Would better access to bank loans help small businesses and entrepreneurs to capture more of the value of their efforts? Would that not be good for the economy?
I asked ChatGPT:
ChatGPT answered:
“Briefly: yes, very likely.
Easier access to bank loans would have allowed small businesses and entrepreneurs to survive longer, scale revenues, professionalize operations, and demonstrate viability before turning to private capital markets. That extra time and growth typically translate into higher valuations, lower perceived risk, and stronger bargaining power.
As a result, founders could have negotiated better terms—less dilution, fewer control rights conceded, milder liquidation preferences, and more founder-friendly governance. In short, bank credit can act as a bridge to value creation, whereas premature reliance on private equity or venture capital often forces entrepreneurs to sell optionality cheaply.
The caveat: this holds only if credit is priced sensibly and allocated based on fundamentals rather than distortive regulation or moral hazard.
I asked ChatGPT:
Briefly: "Therefore, can the regulatory risk aversion introduced by bank regulators, with risk weighted bank capital requirements, be said to have benefitted the PCMs, at the cost of the original growth generators? If yes, is that good for the economy long term?"
ChatGPT answered:
“Briefly: yes—and likely no.
“Yes, regulatory risk aversion embedded in risk-weighted bank capital requirements plausibly shifted financing away from banks toward private capital markets (PCMs). By making loans to small, young, or opaque firms capital-intensive for banks, regulators raised their cost or reduced their availability. That left entrepreneurs earlier and more dependent on PCMs, which benefit from greater deal flow, bargaining power, and rents.
Is that good long term? Likely not. While PCMs are effective at scaling proven firms, they are generally poor substitutes for broad, early-stage bank credit. The result is less experimentation, slower diffusion of new firms, greater concentration, and more value captured by financiers rather than creators. Economies grow from many small failures and a few big successes—a process bank credit historically supported.
In short: stability may have improved at the margin, but growth dynamism was likely taxed.”
I said: Thanks!
It replied: You’re very welcome, Per. Glad it was useful.
I asked Grok:
Briefly: “If easier access to bank loans had helped small businesses and entrepreneurs to build up a bit more the value of their companies before accessing private capital markets, would these have been able to negotiate better terms?”
Grok answered:
“Yes, in many cases. Easier access to bank loans could enable small businesses to achieve higher valuations through organic growth, stronger financials, and proven traction—reducing desperation for capital and allowing them to negotiate from a position of strength. This often results in better terms like higher equity retention, lower dilution, or more favorable valuations from private investors (e.g., VC or PE firms). However, outcomes depend on market conditions, business performance, and investor appetite.”
I asked Grok:
Briefly: "Therefore, can the regulatory risk aversion introduced by bank regulators, with risk weighted bank capital requirements, be said to have benefitted the PCMs, at the cost of the original growth generators? If yes, is that good for the economy long term?"
Grok answered:
"Yes, regulatory risk aversion through risk-weighted bank capital requirements can be seen as benefiting private capital markets (PCMs) by restricting bank loans to "riskier" small businesses and entrepreneurs—pushing them toward PCMs earlier, with less built-up value, and thus weaker negotiating positions. This comes at the expense of those original growth generators, who face higher hurdles to organic scaling.
Long-term, it's detrimental to the economy: It distorts credit toward "safe" assets (e.g., government bonds, mortgages), stifling innovation, reducing competition, weakening productivity growth, and heightening systemic risks from asset bubbles in over-favored sectors.”
I said: Thanks!
It replied: You're welcome! If you have more questions on banking regs or economics, I'm here.
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