Borders' fears over loan and overdraft

Borders UK has become embroiled in the financial difficulties of one of Iceland's troubled banks, raising questions about the impact it will have on the UK bookseller's business.

The retailer – which secured a £23m asset-based loan from Landsbanki earlier this year – also has an overdraft facility with the bank, which has been taken over by Iceland's Financial Services Authority. Its links with Landsbanki could have long-term implications for Borders UK's access to working capital, although any impact is unclear as yet.

The revelation will fuel speculation that the financial crisis in Iceland will have serious implications for UK businesses, particularly high street retailers. Separately, Baugur, the Icelandic investment group, again reiterated yesterday that it was unaffected by the turmoil in Iceland.

It is unclear what will happen to the overdraft but Borders UK could find its access to working capital restricted while the Icelandic government decides what to do with the international operations of Landsbanki.

It has been speculated that the Icelandic authority may force the bookseller to pay back some of its asset-based loan, although the terms of the deal are unclear. The £23m inventory facility, provided by Landsbanki Commercial Finance, is secured against book inventory in the retailer's stores and distribution centre.

In February, Mark Raban, who was Borders' finance director, said: "Landsbanki were able to offer flexibility and complete the deal quickly. We are confident the deal puts us on a strong footing for future success."

Risk Capital, the private equity firm led by Luke Johnson, who is also chairman of Channel 4, bought Borders UK in September 2007. Borders has 40 book stores across the UK.