Kredietlijn

A line of credit is a flexible short-term financing option for businesses. It allows them to borrow up to a predetermined limit as needed.

It functions similarly to a credit card but is primarily used to cover operating expenses or manage fluctuations in cash flow.

A business pays interest only on the borrowed amount, not the entire credit limit. This makes a line of credit cost-effective for temporary cash shortages.

For example, consider Target, which often needs extra funds to manage inventory during peak shopping seasons like Black Friday and Christmas.

Target might have a line of credit with a bank for five hundred million dollars.

Suppose they need two hundred million dollars to stock up on popular items.

In that case, they can borrow that amount and only pay interest on the two hundred million dollars, not the total five hundred million dollars.

After the holiday season, Target can use the profits from sales to repay what they borrowed, bringing their available credit back to five hundred million dollars.

This flexible setup helps Target manage seasonal cash flow needs without taking on unnecessary long-term debt.