Everything You Need To Know About Domain Name Financing
A domain name is often a valuable financial asset, and deals for high-value domains can easily go into the millions. In fact, Facebook purchased the fb.com domain from the Farm Bureau for an astonishing $8.5 million. The majority of premium domain sales fall closer to the $25,000-$250,000 range, what you might pay for a new car or home. As such, it shouldn’t surprise anyone to know that there’s a robust domain name financing industry. Players in this industry will accept domains as collateral, offer domain financing, and much more.
Appraisal For Domain Name Financing
Regardless of your financial goal, domain name financing revolves around the value of a domain. This determines the size of the loan that a buyer will need, as well as the potential for using the domain as collateral. Since domain name appraisal is so specialized, this also limits the scale of the industry to those that have specialized expertise. In general, you can assess the value of a domain off the following factors:
- Brevity — three and four-letter domains are always valuable
- The presence of existing web traffic
- A one or two-word name with high brandability
- Brand association
- Popular keywords
By considering these features and comparing a domain name to similar offerings, you can roughly evaluate its value. However, there’s also much more to consider, and the only sure way to get a precise estimate is with an expert.
Domain Name Financing Options
If you’re in the market for a new domain name, there are several domain name financing options. Some of these rely on third party lenders. Others take the form of an agreement between you and the current owner. Each has its advantages and disadvantages, which you’ll need to take into account when choosing one.
Financing Through A Lender
There are several specialized, domain-oriented lenders that can muster varying amounts of capital for domain financing. Securing a loan of $100,000 or more isn’t unheard of, and there are several advantages to taking this approach. For one, it’s straightforward and reliable since it doesn’t add a new layer to sale negotiations. On the other hand, you’ll have to deal with interest payments and won’t own the name until you pay off the loan.
Negotiating With The Owner
The value of a domain, your credit, and other considerations may make domain financing through a lender impractical. In this case, there are several ways you can approach the current owner with a financing plan. Depending on the nature of the agreement, you can use a service such as escrow or an attorney to execute it.
Escrow Payment Plans
Using an escrow service to arrange a long-term payment plan may be a good choice. It can allow you to start using a domain name immediately while you can pay it off in the long-term. One advantage over using a lender is that you can escape interest on the debt. However, if the owner is amenable to a payment plan, it’ll give them grounds to negotiate a higher sale price.
Lease To Own
Similarly to a payment plan, you can often propose a lease-to-own arrangement. In this case, there’s less of a commitment and no standing debt if you default. On the other hand, you aren’t necessarily guaranteed to be able to ever buy the domain.
A purchase option is one of the more complex ways to procure a domain. In short, you’ll agree to buy the domain at a set price at a set date in the future. For you, this carries the benefit of being able to postpone the purchase until a more financially secure date. The current owner also benefits from confidence in their ability to eventually sell it, which will strengthen their position in negotiations with others.
However, that raises the question of what happens if they successfully negotiate a sale with someone else. You’ll typically have the option to match the higher price and purchase it on the spot. If you decline, then the owner will compensate you. This may be a pre-agreed sum, but it’s typically with a percentage of the difference between the original price and sale price.
Using A Domain Name To Secure A Loan
With domains selling for hundreds of thousands or even millions of dollars, a valuable domain is good collateral. Of course, the value of your loan hinges on the value of your domain. Nonetheless, if you’re eligible for a domain name loan it can be an excellent way to secure an influx of capital.
Benefits Of Domain Name Loans
While a valuable domain name is a real asset, it’s much less important than, say, your home. The inherent risk of using a domain name financing loan is therefore much lower. Additionally, lenders who accept domain names typically don’t require good credit. If other avenues aren’t available, then this can be an easy backup plan.
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If you’re not certain what domain name financing options are right for you, get in touch with us. Our premium domain name brokerage services are one of our flagship services. When you need help finding and buying the ideal domain, we’re here to help.
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