Domain financing is still strong despite credit crisis.
With all the attention on the credit crisis and subprime mortgages these days, I was curious if domain financing companies might be tightening standards and raising interest rates. I reached out to the authority on domain financing — Domain Capital president Robert Alfano — to find out if the domain financing business is changing.
Domain Name Wire: Is it more difficult for borrowers to obtain financing from Domain Capital given the current mortgage crisis?
Alfano: No. The current mortgage crisis has had no impact whatsoever on our borrowers receiving financing from us. While there are many aspects of the domain industry that are often compared to the traditional real estate industry and although our services are sometimes perceived to fill the void of mortgage lenders, Domain Capital is simply a leasing company that was formed and built on decades of experience in the technology leasing business. Also, we are uniquely and strategically positioned as a privately funded specialty finance company. As a result of being a privately funded leasing company, as opposed to having a traditional mortgage-based business model, we have seen no reason to tighten our financing guidelines even with what is currently happening to the traditional real estate market.
DNW: Is Domain Capital able to get the same access to financing as it did before the mortgage crisis?
Alfano: Yes. Over the past two years, we have been extremely successful in building our portfolio to levels that have well exceeded our initial business model projections. As a result, our cash flow and private funding sources allow us to operate our daily business.
DNW: Has Domain Capital changed its interest rates on domain financing?
Alfano: No. We have seen no need to adjust the interest rate that we charge at this time. Our cost of money has remained stagnant and our interest rate is well situated. We are able to keep our interest rate at the same level due to the expensive nature of alternative sources of funding. Also, traditional financing sources are typically more expensive, do not recognize domain names as assets and collateralize different types of assets such as personal real estate, stocks, bonds, etc.
DNW: What standards/guidelines does Domain Capital have for its borrowers and have the standards/guidelines become stricter given the current credit market?
Alfano Again, our funding guidelines and procedures build on decades of experience in the technology leasing business. We are the definition of a relationship-based business and pride ourselves on that fact. Our financing guidelines have complied with banking industry standards for over thirty years. As a result, we see no need to change our financing guidelines despite the current credit market. Specifically, our financing guidelines are a hybrid of assessing the quality of the underlying asset (the domain name) and the credit worthiness of our clients. With respect to the quality of the underlying asset, the due diligence process was specifically designed to determine, among other things, whether a prior security interest in the domain name exists and whether there any trademark concerns with the domain name which could cause an ownership dispute under the Anti-Cyber Squatting Consumer Protection Act. Concerning the borrower’s credit, we look for a solid credit score and a credit history that contains limited credit blemishes. Credit issues such as bankruptcies or tax liens require that we conduct additional due diligence.
DNW: How much money does Domain Capital finance on a domain purchase?
Alfano: There is no set amount of money that we use to determine the amount of financing on a domain name transaction. Rather, each deal is different depending upon the quality of the underlying asset(s) and the borrower’s credit.
Alfano: From where we stand, we have seen and continue to see numerous inquiries a day for our financing services. Domain investors are realizing the many business benefits of taking their domain names and using them as a means to generate working capital. Our services, combined with the explosion of online and live auctions, have significantly contributed to the overall growth and increased market capitalization of the entire industry. As far as the future is concerned, we anticipate seeing a record number of new entrants into the domain investing space, higher than ever domain sale prices and even more online and live auctions.