An agreement between a small business and a bank which leads to the bank consenting to honor a draft or demand for payment leads to the firm getting a letter of credit.
What is a letter of credit?
This is an agreement that bank makes with a small business in order to increase the credibility of the small business when buying a good or service internationally.
The agreement makes it clear that the small business will pay the money that it owes for the goods delivered and that the bank guarantees it.
The reason for this is that the small business might not be trusted or popular enough so the seller might not trust them. Banks are more trusted however so the sale will go through.
In conclusion, an agreement between a bank and small business to guarantee payment is a letter of credit.
Find out more on letters of credit at https://brainly.com/question/14225433
#SPJ1
