Capital scarcity adds to businesses' distress.

• Author: Taylor, Mike
• Position: SMALL [biz]

General Capital Partners specializes in advising financially distressed businesses, a niche that might be exploding except that the avenues for relief have imploded.

"We typically get hired to either get companies refinanced, get them new equity investment, or we sell them to preserve value in a 90- to 100-day time frame," said Greg Barrow, managing director of the Denver-based investment banking firm.

As Barrow discussed the economy and the state of small business last month, his firm was entertaining bids on a Ramada Inn in Zanesville, Ohio, and a Holiday Inn down the road in Dayton. The hotels were in a court-ordered bankruptcy auction, and General Capital Partners was retained as the financial advisor for both.

Earlier this year, General Capital Partners found a Russian venture-capital firm to buy Adam Aircraft for $10 million after the Centennial airplane manufacturer couldn't raise the equity needed to continue and was forced into Chapter 7 liquidation.

On the day that President Bush announced that $250 billion would be earmarked to buy stock in nine large national banks, Barrow seemed mildly encouraged but said the real indication of whether the economy is mending will come when smaller banks are loaning money freely again.

The government is onboard to take care of bigger banks one way or the other," Barrow said. "I want to see how smaller, regional banks shake out, liquidity-wise. Because they don't have enough assets on their balance sheet to where they can make loans, and that's why they're frozen. I'm curious to see what happens to those banks that loan to most businesses, and then we'll see what has to happen to unfreeze things."

Barrow, 43, says that after he started General Capital Partners in 2002, bankruptcy filings decreased every year for the next five years. They've increased every quarter for the last year and a half, and through August were on pace to increase 28 percent over 2007.

"We have seen a lot more filings, but the quality of the filings has been sketchy or touch-and-go because of the economy," he says. "If there's no ability to reorganize, there's no ability for us to do what we do.

"It's just been very difficult for companies to either re-organize because they need new debt or they need an investor to come in who's holding back right now, or they just need somebody to buy them. And the buyers are holding back because, again, they can't get debt and they can't necessarily justify paying a price today when it...