Define: Accommodation Endorsement

Accommodation Endorsement
Accommodation Endorsement
Quick Summary of Accommodation Endorsement

An accommodation endorsement is a financial instrument used in banking that involves a third party, known as the accommodation party, providing their signature or endorsement to support the creditworthiness of another party, typically the borrower or payee. By endorsing the instrument, the accommodation party assumes responsibility for the debt or obligation if the primary party fails to fulfil their obligations. Accommodation endorsements are commonly used in situations where the primary party may have limited creditworthiness or financial resources, and the endorsement serves to enhance their ability to obtain credit or conduct financial transactions. This type of endorsement is a form of guarantee and can have legal implications for the accommodation party if the primary party defaults on their obligations.

Full Definition Of Accommodation Endorsement

The act of a third person—the accommodation party—in writing his or her name on the back of a commercial paper without any consideration, but merely to benefit the person to whom the paper is payable or to enable the person who made the document—the maker—to obtain money or credit on it.

An accommodation endorsement is a loan of the endorser’s credit up to the face amount of the paper.

Accommodation Endorsement FAQ'S

A written acknowledgement that an entity will be liable for an obligation is referred to as an accommodation endorsement. Despite not receiving any compensation, the entity enters into this commitment. This endorsement is typically given to help a related party obtain financing.

For example, a corporate parent agrees to repay a loan if the subsidiary applying for it is unable to do so. Alternatively, a parent guarantees a child’s lease payments so that the child can enter into a lease agreement for an apartment. As a result, the party receiving this benefit’s creditworthiness improves.

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This glossary post was last updated: 29th March 2024.

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