Is Domain Financing Good or Bad for Domainers?
From credit cards and mortgages to personal loans and car loans, there is no shortage of financing options for people to buy things without paying cash upfront. Financing allows for those without big warchests to acquire high-dollar items by paying over time, usually with interest. While this affords people higher purchasing power, the risks associated with financing are not always clear.
The domain name industry does not currently have a financing system in place for acquiring domain names (excluding credit cards.) Payment plans however have become an increasingly useful tool for domain sellers, using platforms like DAN.com to allow domains to be paid for over time in installments. These payment plans do not charge interest, so they do not technically qualify as financing. Since sellers are not being paid in full upfront and no third party is covering the total cost on behalf of the buyer, these domain payment plans boil down to a lease-to-own acquisition. (Side note – LeaseDomain.com is currently expiring, if you’re interested.)
After browsing a NamePros.com thread on the topic, it’s obvious there is interest in the potential of domain financing entering the industry. Domain names, particularly the good ones, can carry substantial value at both a wholesale and end-user level. Since most conventional financing requires some sort of collateral, why can’t valuable domain names be financed in the same way? One problem with this is trying to value a domain name for the sake of financing collateral. While automatic appraisal tools like Estibot.com and GoDaddy Appraisals can be useful, their values can tend to be arbitrary and misleading – especially for middle-of-the-road domains. The same can be said for brandable domains or keyword domains – different people have different thoughts on value, which make it harder to guarantee a loan against such a name. That being said, liquid names like LL.com and LLL.com have more predictable values and would be better candidates for loan collateral.
The only service currently offering any type of domain financing is Epik. According to their website, a loan can be provided against a domain name for up to one year. If the loan is not repaid within the given timeline, Epik will take ownership of the domain. This process is slightly different than typical financing, because it uses a domain you already own as collateral for a loan, rather than getting a loan to purchase a domain that will be used as collateral. A loan such as this boils down to a temporary liquidation of your domain – as long as you can pay it back. On one hand, a domainer with plenty of liquidity could use an Epik loan to leverage their portfolio for more liquidity, buy more domains, and use sale proceeds to pay back their loan by the due date (after all, cash is king.) On the other hand, a domainer with little-to-no liquidity might be tempted to use such a loan to keep their portfolio afloat with renewals or acquisitions, but risk losing a valuable piece of their inventory if their strategy doesn’t pan out. If I had to guess, most domainers fall into the latter category.
Now, imagine a hypothetical service that will finance the purchase of a valuable domain name and allow you to pay it off over time – sort of like a domain name bank. First, you find a great domain available for a reasonable price (easy, right?) After compiling a list of potential end users, comparable domain sales, and proof of personal liquidity, you present this to the “domain bank” and request a loan. If they accept, you get the funds to purchase the domain. With a loan term of five years, you would have a more realistic timeframe to sell the domain as well as relatively small monthly payments that make paying off the name easier. If the loan is paid off, then the service worked perfectly. If you sell the domain within the time period, even better. If however the loan isn’t fully paid off, then you risk the domain being seized by the loan provider. While ultimately the same outcome as Epik’s loan, you do not risk your beginning inventory.
While loans of this type may not exist in the immediate future, it begs the question – will financing domains help or hurt domainers? Given how global domaining is, it would be tricky to create a system that meets financing laws across dozens of countries. In the same vain, the way people manage their finances and liquidity varies from country to country. Domain loans risk preying on naïve or cash-strapped domain owners. It wouldn’t be right seeing someone collateralize their best domain name just because they are strapped for cash – just look at credit card debt in the US; people are easily susceptible to their lines of credit. Ultimately I am for domainers having access to liquidity. Higher buying power within the industry will lead to higher sales prices. Higher sales prices lead to higher valuations based on comparable sales. That being said, I know that people who get started in domaining aren’t usually doing so with huge budgets, and I’d hate to see the industry become burdened with financing companies seizing domains. If those seized domains eventually made their way back to the expiry stream, then maybe the whole process could be equitable for all involved.
Nonetheless, I am excited to see how domain financing plays out in real time and if it will allow domainers to thrive in buying and selling their inventory.