What is 'Accommodation Endorsement'

An accommodation endorsement is a written agreement from one entity to back the credit liability of another. This insurance is made without consideration and adds strength to the creditworthiness of the insured entity. Accommodation endorsements are usually made by a parent company to a subsidiary and allow the subsidiary to take on the parent's credit standing.

BREAKING DOWN 'Accommodation Endorsement'

An accommodation endorsement is applied when a corporate parent acknowledges that it will pay a loan if the subsidiary applying for the loan is unable to pay it. Accommodation endorsements are usually used by one person to back the credit liability of another person with a poor or inadequate credit history. This practice can be ill advised from a financial perspective because the holder of the note can go after the accommodator rather than the debtor and will do so if the accommodator has substantial financial resources or is easier to locate than the debtor.

Accommodation endorsements involve no transfer and negotiation to the accommodating endorser. The endorser merely lends his signature to the paper to induce someone else, often a bank, to accept the negotiation/transfer from the payee. An accommodation endorsement is similar to a government guaranteeing a third party's debt with its full faith and credit. 

There are important legal limitations to remember when dealing with accommodation endorsements. An accommodation endorsement of a partnership made by one partner, but which is not within the scope of the firm business, will not bind the firm and other partners, unless such endorsement was in fact specially authorized or assented to, or is subsequently ratified. Likewise, a mere accommodation note or accommodation endorsement by a married woman is not sufficient to create a charge upon her separate estate. 

Example of an Accommodation Endorsement

Accommodation endorsers typically have some relationship with the borrowing person. A common example from everyday life is when a parent guarantees the lease payments of a child by co-signing on the lease, so that the child can enter into a lease agreement for a car or an apartment. As a result, the creditworthiness of the party receiving this benefit is enhanced. It also applies as a banking practice whereby one bank endorses the acceptances of another bank, for a fee, making them appropriate for purchase in the acceptance market.

RELATED TERMS
  1. Accommodation Endorser

    An accommodation endorser is one who agrees to back the credit ...
  2. Endorser

    An endorser is authorized to sign a negotiable security in order ...
  3. Accommodation Paper

    A negotiable instrument that provides a third-party promise of ...
  4. Pay to Order

    Pay to order describes a check or draft that must be paid via ...
  5. Advisory Endorsement

    Advisory endorsements are adjustments to the provisions used ...
  6. Joint Endorsement

    The type of endorsement that is required on any type of joint ...
Related Articles
  1. Investing

    Bill of Exchange

    A bill of exchange is a document used in international trade to pay for goods or services. It is signed by the person promising to pay, and given to the person entitled to receive the money. ...
  2. Insights

    How Monetary Policy Affects Your Investments

    Monetary policy changes can have a significant impact on every asset class. investors can position their portfolios to benefit from policy changes and boost returns by being aware of the nuances ...
  3. Insurance

    Do You Need Umbrella Insurance For Household Help?

    Homeowners insurance may not be enough – say, if your nanny sues for damages after an accident. That's where umbrella coverage comes in.
  4. Managing Wealth

    What Is Usain Bolt's Net Worth?

    How much does being the fastest human being on Earth get you?
  5. Investing

    Why Investors Should Back Agrium, Potash Merger (POT, AGU)

    Investor advisory firm Glass Lewis offered a few reasons why shareholders should endorse the $36 billion deal.
  6. Small Business

    Most Ironic Product Endorsements And Sponsorships

    Some celebrities make sense when they promote a product. However, these just don't ... not by a long shot.
  7. Personal Finance

    Have Bad Credit? 6 Ways to a Personal Loan Anyway

    It'll cost you more, but borrowing is definitely doable. Here's how to proceed.
  8. Insights

    What Is Michael Phelps’s Net Worth?

    Find out how much Olympic-superstar, Michael Phelps, is worth.
  9. Managing Wealth

    A quick guide to buying a home for your child

    Buying a home for your child is certainly generous and can benefit you, but beware of the pitfalls.
  10. Small Business

    How To Increase Your Appeal To Prospective Lenders

    Making a business eligible for loans/credit cards at the best possible rates requires crafting an excellent credit profile through the smart use of credit.
RELATED FAQS
  1. What's the biggest sports endorsement deal ever signed?

    The largest athlete endorsement deal exceeds $180 million over the course of 13 years and belongs to famous Chicago Bull ... Read Answer >>
  2. Are Subsidiaries Included in Company Statements?

    Learn how foreign and domestic subsidiaries are listed on the balance sheet of the parent company. Read Answer >>
Hot Definitions
  1. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
  2. Internal Rate of Return - IRR

    Internal Rate of Return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments.
  3. Limit Order

    An order placed with a brokerage to buy or sell a set number of shares at a specified price or better.
  4. Current Ratio

    The current ratio is a liquidity ratio that measures a company's ability to pay short-term and long-term obligations.
  5. Return on Investment (ROI)

    Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an investment or compare the efficiency ...
  6. Interest Coverage Ratio

    The interest coverage ratio is a debt ratio and profitability ratio used to determine how easily a company can pay interest ...
Trading Center