The extent of new lending by the banks continues to preoccupy politicians but for some hard-pressed retailers existing borrowing is front of mind.

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The extent of new lending by the banks continues to preoccupy politicians but for some hard-pressed retailers existing borrowing is front of mind.

The cool retail climate at Christmas pushed potential breaches of covenant up the agenda. Alexon, Flying Brands, HMV and JJB Sports all warned that they faced problems meeting covenant tests. If the harsh trading conditions continue, more retailers may find themselves in the same boat. How are the banks likely to react?

One banker to the industry told me this week that financiers remain “in listening mode” when retailers hit turbulence. “Tough questions have been asked but there have been no knee-jerk reactions,” he said.

The money men seem to accept that exceptionally cold and snowy weather did have an impact on many retailers and was not just an excuse for a poor seasonal showing. They accept, too, that some retailers were more susceptible than others to the disruption.

But even when one-off circumstances are important expectation management is crucial. Banks, like all businesses, hate nasty surprises, so early engagement with them is vital when it appears that plans might be going awry. It naturally follows that the banks then want to know how a retailer intends to get itself out of the doldrums and to be kept informed of progress.

All four retailers whose covenants were endangered reported a supportive reaction from lenders. Discussions are ongoing with some, but JJB was able to obtain a waiver of its January tests dependent on the success of an emergency fundraising - at a cost of £100k.

JJB has found the going tough for some time, but the banks remain on board. In the cases of well-known companies such as retailers, financiers remain keen to avoid the stigma that would result from business collapse and job losses.

But they’re not charities. They remain, as one told me, “hard-nosed”. That makes it all the more important that retailers engage with them early.

Follow George on Twitter at twitter.com/GeorgeMacD