Shares fell by as much as 9% in the wake of the disclosure in a Sunday newspaper, which was confirmed by sources. It compounded the dire performance of the stock so far this year which has seen it fall by more than half since January.
But the shares clawed back some of their losses after the group issued a statement saying it expected to remain within banking covenants.
Mothercare said that, as was regular practice, it was "in regular dialogue with all its financing partners".
It also reiterated that underlying annual pre-tax profits published later this month - predicted by analysts at around £8 million - were expected to be in line with forecasts, and debt in line with guidance.
"Mothercare is and expects to remain in compliance with the provisions and covenants of its facilities," it added.
"Mothercare continues to discuss with its banks its future plans for the business and the consequential funding requirements, and is grateful to them for their continued support."
The statement came after the Sunday Times said that the group had asked lenders HSBC and Barclays for breathing space.
It follows a number of profit warnings and the departure of chief executive Simon Calver in February.
The UK business, which made a loss of £21.7 million during the 2013 financial year, has been hampered by price wars in home and travel goods.
A source close to Mothercare said the talks with lenders were "part of a prudent approach" about giving it the flexibility to fund investment as it opens new stores and carries out trial refits.
Elsewhere in the business, loss-making stores are continuing to close as planned.
Meanwhile, it emerged over the weekend that the company was putting the squeeze on suppliers by adding a 2.5% charge on all invoices and told them it would extend its payment time for bills to 90 days.
Last month, the group lifted some of the gloom surrounding Mothercare by revealing a more resilient UK sales performance so far this year.
The retailer, which has 220 stores under the Mothercare and Early Learning Centre brands, said like-for-like sales were just 0.3% lower in the 12 weeks to March 29, against a 1.9% fall for the whole financial year.
But Cantor Fitzgerald analyst Mike Dennis cut the retailer's target share price following the revelations, reiterating a sell recommendation.
He said: "Worse still, in our view, is that Mothercare's management might have to consider a deeply discounted rights issue or a joint venture deal to inject cash into the business and take loss making operations off the balance sheet."