Accommodation Endorsement

Accommodation endorsement can be defined as the written agreement between the two entities where one entity legally back the credit liability of the other entity. This is a type of insurance that is used to create and enhance the creditworthiness of an entity having debt obligations. Moreover this insurance is made without any consideration and helps in enhancing the credibility of the borrower or debt acquiring company. Accommodation endorsement is usually done by a parent company for its subsidiary or supplementary company. With the help of accommodation endorsement the subsidiary can use the credit standing or credit stability of the parent company. Another example of accommodation endorsement is the government guarantee that it grants to a third party or a business company ensuring that government is supporting the company in terms of its credit standings. In this case the government is backing the debt of that company with full faith and guarantee.

The concept of accommodation endorsement is also used in our daily life as well. For example student can also acquire loan on the basis of this concept as well. If someone is young and don’t have a credit backing in order to acquire loan he can get the guarantee of his parents or some other guardian to get itself qualified for the loan or credit. In this way the person can get the loan on the backing of his parents or some other entity that can guarantee the payback of loan.

Other Related Accounting Articles:

• Underlying Debt
• Credit Utilization Rate
• Creditor
• Additional Collateral
• Going Concern Concept
• Accommodation Line
• Residual Income
• Debt to Income Ratio
• Over leveraged
• Debentures