Accommodation Endorser Definition
An accommodation endorser is a third party or a business that agrees to take responsibility for the credit liability of another party. The endorser gives a promissory note or an acknowledgement paper to a financial institution to back the credit liability of another company, usually a subsidiary or smaller company.
Weaker companies that need to access credits for developmental purposes need an accommodation endorser that would back their credit liabilities. A financially stronger company with a good credit history or credit rating can back up another company for credit purposes.
A Little More on What is an Accommodation Endorser
One cannot undermine the importance of accommodation endorsers, especially to small and financially weak companies. Just as a parent co-sign an autoloan for his child (a college student) with no previous credit history, a parent company can also act as an accommodation endorser to its subsidiary or a smaller company.
An accommodation endorser formally agrees to take up the liabilities of the smaller company it is standing for if the company defaults on loan payments. The endorser gives a promissory note to the financial institution issuing the credit. In reality, an accommodation endorser is required to sign on a dotted line indicating to back the credit liability of a smaller company or its subset.
Examples of an Accommodation Endorsement
Most times, an accommodation is a parent company but there are many cases where the endorser is not a parent company but has an intimate relationship with the borrower. An example is highlighted below;
A pizza company can act as an endorser to one of the small companies that supplies its ingredients. The pizza company endorses the company not because it is its subsidiary but because they have developed a close relationship over time. In every accommodation endorsement, a stronger company endorses a weaker company and not otherwise.
Reference for “Accommodation Endorsement”
Academics research on “Accommodation Endorsement”
Consideration and the Federal Estate and Gift Taxes: Transfers for Partial Consideration, Relinquishment of Marital Rights, Family Annuities, the Widow’s Election, and …, Lowndes, C. L. (1966). Consideration and the Federal Estate and Gift Taxes: Transfers for Partial Consideration, Relinquishment of Marital Rights, Family Annuities, the Widow’s Election, and Reciprocal Trusts. Geo. Wash. L. Rev., 35, 50.
Unjustified Liability for Accommodation Endorsers, Kuenzel, C. A. (1966). Unjustified Liability for Accommodation Endorsers. U. Miami L. Rev., 21, 410.
Accommodation Parties: A Potpourri of Problems, Murray, D. E. (1967). Accommodation Parties: A Potpourri of Problems. U. Miami L. Rev., 22, 814.
Using a Dummy Corporate Borrower Creates usury and Tax Difficulties, Portman, G. A. (1974). Using a Dummy Corporate Borrower Creates usury and Tax Difficulties. Sw. LJ, 28, 437.