Accommodation endorsement definition

What is an Accommodation Endorsement?

An accommodation endorsement is a written acknowledgement that an entity will be liable for an obligation. The entity enters into this commitment despite not receiving any consideration. This endorsement is normally given in order to assist a related party in obtaining financing, such as when a corporate parent is assisting a subsidiary in obtaining financing from an outside party.

Example of an Accommodation Endorsement

Wicket Ltd., a small machinery supplier, is seeking a short-term loan of $100,000 from its local bank to purchase raw materials for a large, urgent order. However, due to its limited credit history, the bank is hesitant to extend the loan without additional assurance. To help secure the loan, Global Distributors Inc., a long-time business partner of Wicket, agrees to endorse the promissory note as an accommodation party—meaning that Global provides a guarantee without receiving any direct benefit from the loan.

Here’s how the accommodation endorsement is structured:

Promissory Note Excerpt:
“For value received, Wicket Ltd. promises to pay the amount of $100,000 to First City Bank on or before July 1, 2025, with interest at 6% per annum.”
(Signed by: John Smith, CEO – Wicket Ltd.)

Accommodation Endorsement:
“Pay to the order of First City Bank.”
(Signed by: Sarah Lee, CFO – Global Distributors Inc.)

In this example, Global Distributors becomes secondarily liable for the loan. If Wicket fails to repay it, the bank has legal recourse against Global. This endorsement strengthens Wicket’s loan application by providing added security for the lender.