Legal Definitions - accommodation loan

An accommodation loan is a temporary financial arrangement where funds are provided to a borrower, often by someone with a personal or existing relationship, to help them meet an immediate, short-term financial need or to bridge a gap until more permanent financing can be secured. These loans are typically characterized by their short duration, specific purpose, and may involve more flexible terms than traditional commercial loans, as the primary motivation is often to "accommodate" the borrower rather than to generate significant profit for the lender.

• Example 1: Family Home Purchase
  A young couple is purchasing their first home, but the sale of their current apartment is unexpectedly delayed by a few weeks. They need to close on the new house sooner than their apartment sale will finalize, leaving them temporarily short for the down payment. The wife's parents offer them a short-term loan to cover the down payment, with the understanding it will be repaid as soon as their apartment sale closes.

  Explanation: This is an accommodation loan because the parents are providing funds to "accommodate" their children's immediate need to close on a house, bridging a temporary financial gap. The loan is short-term, driven by a personal relationship, and designed to help the couple through a specific, temporary situation, rather than being a long-term, profit-driven financial product.

• Example 2: Small Business Payroll
  A small manufacturing company experiences an unexpected delay in receiving a large payment from a major client. This delay means they won't have enough cash on hand to make their bi-weekly payroll. To avoid missing payroll, the company's principal owner secures a short-term loan from a close business associate, agreeing to repay it with interest as soon as the client payment arrives the following week.

  Explanation: This illustrates an accommodation loan because the funds are provided to meet an urgent, temporary business need (making payroll) due to an unforeseen cash flow issue. The loan is short-term, provided by an associate, and serves to "accommodate" the company's immediate operational requirement until its expected revenue materializes.

• Example 3: Non-Profit Project Funding
  A non-profit organization receives a large grant for a new community center project, but the grant funds will not be disbursed for another three months. However, they need to pay an architect's initial design fee immediately to secure the architect's services and start the project on schedule. A board member personally lends the organization the required amount, interest-free, to be repaid when the grant funds arrive.

  Explanation: This is an accommodation loan because the board member is providing temporary funds to "accommodate" the non-profit's immediate need to pay the architect, bridging the gap until the larger, approved grant funds become available. The loan is short-term, serves a specific purpose, and is provided to facilitate the organization's operations during a temporary funding delay.