Someone looking to unlock money to start a business or invest in another opportunity might not realize that they can borrow against a domain name while keeping ownership of it. Let’s say you are lucky enough to own a one word domain like walker.com, a two word phrase like newbody.com, or a three letter domain name like ezc.com.
All of these domains recent sold: walker.com for $90,000 on Sedo, newbody.com for $15,000 on SnapNames, and ezc.com for $22,500 on NameJet. If you own a similar domain name, you can unlock some of its value by getting a loan with a domain name financing company. Likewise if you want to loan money to a person or company, domain names can serve as a very good source of collateral and despite that fact, loans backed by domain names generally carry relatively high interest rates.
Who Offers this Type of Loan?
Commercial banks are not equipped to make loans against domain names. Unlike lending against real estate, there is not a highly accurate and government-regulated process when it comes to appraising domain names. Loan officers and loan committees don’t understand domain names, and their high fixed costs don’t lend themselves to fooling around with small loan sizes. Banks have to comply with regulators that might question a loan against something they consider an intangible or “blue sky.”
There are private domain name financing companies that have filled the space. The most notable ones are Lendvo and Domain Capital. These companies generally lend for up to 2 years and generally charge monthly interest rates of 1 to 3%. Lendvo says it can lend up to $100,000. Domain Capital has loaned some higher amounts for someone acquiring a huge portfolio of names and other specialty circumstances. While you can use the money to acquire a domain name or develop a business around your domain name, you do not have to. You could borrow money against a three letter domain name, and then turn around and buy a residential property you were planning on flipping, if it makes economic sense.
Most Domain Names are Worthless
The vast majority of domain names are worthless, or have no real value above the $10 or so they cost per year to keep registered. Even a domain name with some value, like a long-registered domain name of a locally-known realty company (for instance buffalorealtyllc.com or gilabendrealty.com), might have little to no value if you were to separate the company itself from the domain name, or might only be worth a couple hundred bucks. Financing companies want something that could be quickly sold and has value on its own, without any company or website attached to it.
Three letter domain names or even some four letter domain names, are perfect example. No matter the letter combination, you can see three letter domain names being sold every week on DNJournal’s sales list. You see three letter domain names always being put up for sale or auction at sites like Sedo, NameJet, Go Daddy Auctions, Brannans, and others. There is always a market for them and they are easy to sell.
Registration Usually Changed to Lender
Getting a domain name when your borrower stops paying is obviously paramount for the lender. There is not a foreclosure process like there is for real estate. Suing and trying to get a domain name registrar or ICANN to change the registration could be complicated and costly. For this reason, domain name financing companies are generally going to require you to transfer the registration to their name. They will contractually agree to transfer the ownership back to you once it is paid off. Dorothy Cui of 190.com explains the process here.