Legal Definitions - accommodated party

An accommodated party is an individual or entity who directly benefits from a financial arrangement, such as a loan, credit line, or lease, but requires another person or entity (known as an "accommodation party") to co-sign or guarantee the obligation. The accommodation party essentially lends their creditworthiness or reputation to help the accommodated party secure the deal, often because the accommodated party lacks sufficient credit history, collateral, or financial standing on their own.

Here are some examples to illustrate this concept:

• Example 1: Student Car Loan

  Imagine a college student, Liam, who needs a car to get to his part-time job. He applies for a car loan, but because he has no established credit history, the bank is unwilling to approve him on his own. His mother, Sarah, who has excellent credit, agrees to co-sign the loan. In this scenario, Liam is the accommodated party because he is the one who receives the car and is primarily responsible for making the loan payments, but he needed his mother's credit to secure the financing.

• Example 2: Small Business Expansion

  A new bakery, "Sweet Delights," wants to expand its operations and needs a business loan to purchase new equipment. The bank is hesitant to lend a large sum to a relatively new business without a long track record. The bakery's owner, Maria, asks her wealthy uncle, Roberto, to personally guarantee the loan. Roberto agrees, promising to pay back the loan if "Sweet Delights" defaults. Here, "Sweet Delights" is the accommodated party because the business receives the funds for expansion, but it relied on Roberto's personal financial strength to satisfy the bank's requirements.

• Example 3: Apartment Rental with Poor Credit

  David is looking to rent an apartment but has a low credit score due to some past financial difficulties. Landlords are reluctant to approve his rental application. His friend, Emily, who has a stable income and excellent credit, agrees to be a guarantor on his lease. This means Emily promises to pay the rent if David fails to do so. In this situation, David is the accommodated party because he is the one who gets to live in the apartment and is responsible for the rent, but Emily's guarantee made it possible for him to secure the lease despite his credit history.