Domain Name Financing Options Are Underutilized

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Earlier today I wrote about the Gem rebrand and Gem.com deal. I think domain name financing options are underutilized. Perhaps it is because they are lesser known than other types of financing, but I think prospective buyers and sellers need to consider and/or offer financing options for domain names to get deals done.

Listed below are four types of deals that buyers or sellers might propose when a buyer can not or will not pay the full asking price up front:

Payment plan – An escrow service like Escrow.com offers buyers and sellers the option to pay for a domain name over a period of time. Some domain industry lawyers also offer this type of payment option, and some sellers will agree to this type of deal without a third party (much more risky for both parties). In addition, platforms and marketplaces like Undeveloped and Uniregistry also offer payment plans. If a buyer can not afford to pay $500,000 for a domain name up front, perhaps they can pay $100,000 a year for 5 years. The advantage for the buyer is that they can pay over a longer period of time. The advantage for the seller is they get a deal done and can keep the payments and the domain name if the seller does not make all of the payments or otherwise defaults.

Lease to Own – A domain name registrant may be willing to lease a domain name with a purchase option to buy the domain name. I believe Escrow.com or an attorney will be able to facilitate a deal like this. During the lease term, the buyer can pay the seller a monthly, quarterly, or annual fee, and the buyer can use the domain name. They can then buy the domain name in the future if they would like so they have control of the domain name and it is no longer owned by a third party.

FinancingDomain Capital offers buyers the opportunity to finance their domain name purchase. Unlike a payment plan, I do not believe the seller has to agree to the financing aspect and would not likely have anything to do with the financing aspect. The seller would be paid the full purchase price by the lender, and the lender would take possession of the domain name for the buyer to use. The buyer would work with the lender on the payment terms and responsibilities. Perhaps a VC or PE company that has invested in a startup would also offer to finance a purchase on behalf of the startup.

Purchase Option – This is not exactly a financing option, but by paying the registrant of a domain name a purchase option, the prospective buyer would have the opportunity to buy a domain name at a set price at a future date. I think a purchase option can be crafted in a way that helps both the buyer and the seller. For instance, the seller may be allowed to add language to sell for a higher offer if one is received and the buyer would receive some of that money if they do not agree to match that higher offer. It’s a bit complicated because a domain registrant would need to be trusted to not sell the domain name to someone else after agreeing to sell a purchase option, and a domain registrant would need to understand that they can’t liquidate a domain name if they sold an option. Obviously, this option would need to be worked on with an attorney and require both a trustworthy buyer and seller. I wrote about using an option to buy a domain name a few years ago.

Obviously there are drawbacks to each kind of deal. In addition, I think it is important to engage an attorney with domain name and IP experience when drafting an agreement or agreeing to any type of financing deal. There are things that can go wrong (UDRP, lawsuit, bankruptcy, death, damaged goodwill…etc.) and a lawyer should represent each party to ensure adequate protection.

I think financing options for domain names are underutilized. Perhaps it is because people do not know or think about them when buying a domain name, but I think they should consider them.

In an article like this, it should be noted that Escrow.com, Undeveloped, and Domain Capital are both advertisers. You can see their banners, but I want to make sure people understand that they are advertising even though they have no advance knowledge about this article.

11 COMMENTS

  1. Totally agree with this. I have sold names on terms, and I have purchased 5-6 City names on terms that I would not have had the ability to purchase of full price cash was the only option. I am currently in discussions on a 7 figure deal, and I am offering 5 years of terms.

  2. I agree! You can get a much better domain by paying over time. Many sellers are open to these kinds of deals and venues like escrow.com (and others), make it easy. Terms can be good for sellers too – if buyer doesn’t make all the payments, the seller keeps what has been paid and gets the domain back! Make sure to use an escrow that holds the domain so you can get it back – and of course, have a good contract.

  3. Hi Elliot, Great post and we’re firm believers that financing is the best way for SMB’s, Startups and Entrepreneurs to gain affordable access to a great premium name. At our Names.club marketplace we focus on our “Easy Payments” plan, which offers premium domains from all extensions for 15% down and then the balance is paid over 60-months, with no interest, and the ability to cancel any time, just like a subscription. We’ve sold many names that would not have sold if the end-user had to pay the full amount upfront. 🙂

  4. Just docusigned on an escrow domain holding agreement today for 70k over 36 months. That option is what made the sale.

    • Hardly anyone proposes a deal like this to me, and I have only done a dozen or two deals like this out of hundreds of sales.

      If you include platform and marketplace sales, I think it is a tiny / minute fraction of all sales.

  5. You forgot renting. No different than a large corporation paying $10,000 per month for retail space at the shopping mall for one of its many stores. The corp never wants or tries to buy the retail space at the mall from the landlord REIT. A web address on the Internet can be rented the same way, enabling the Corp to finance its use of the web address so it can use it to make sales and generate revenue.

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