LAKE BUENA VISTA, Fla. — With $45 billion in memberbusiness loans spread thickly across the industry, is the timingripe for credit unions to tap into other niches?

Jay Mossman, founder and CEO of Akcelerant, a Malvern, Pa.-basedfinancial service software provider, thinks so.

At a Wednesday breakout session at NACUSO'sannual conference, he announced the launch of Financu, a newCUSO that will offer credit unions opportunities to becomeinvolved in financing for nontraditional sectors such as gaming,bulk food, solar projects and small equipment financing under$250,000.

The CUSO's initial niche will be providing financing for gamingmachine operators, Mossman said. The machines are not on the scaleof a Caesar's Palace, but are popular on tribal lands, henoted.

To participate, a credit union would loan money to the CUSO at4% for 48 months. Financu provides a loan at 12% for 48 or possibly60 months, Mossman explained. The operator then purchases theequipment lease to the casino for seven years.

New machines cost $18,000 and can be paid off between 22 and 28months. There is a seven-year lease with an opportunity to renewfor another seven years. According to Mossman, the life of theequipment is between five and 10 years and the machines can bereadily upgraded.

Mossman said the machines bring in, on average, $130 per day. Onthe strip in Las Vegas, it's $169, and in Pennsylvania, where he'sbased, the amount is $258.

“We have better than average returns and it provides the abilityto diversify the portfolio beyond real estate,” Mossman said.“There's a relatively short time investment horizon at 48 months.There is also a huge market for used equipment and slot machines.In South America and Asia, they're exploding with usedmachines.”

Mossman said 60% of casino revenue comes from slot machines,with regional and tribal use accounting for the highest industrygrowth. Some operators lease the actual felt on games such asTexas Hold'em poker. Financu isn't doing this type of financing, headded.

Casinos are highly-regulated industries, Mossman said.

“Every day, operators have to report earnings to the state. Anyloans we make to any operators, we know the cash flow that'soperating on a daily basis. It's all public data,” he said.

Some may view slot machines as risky business. Mossman said tomanage risk, Financu has a full-time chief credit officer, 90-dayintensive due diligence, a tribal lawyer on staff, and the programis in compliance with all NCUA regulations. Four percent offunds are taken in for loss reserves, he said.

After meeting with a businesspartner who wanted to raise capital for niche financing, Mossmansaid he consulted with Guy Messick, a partner with Messick &Lauer PC in Media, Pa., who specializes in legal consultation forexisting and startup CUSOs.

Messick, who attended the NACUSO breakout session, gave the nodafter conducting his own assessment.

Financu is currently seeking credit unions to invest in theCUSO. Those in the first tier can have 20% equity in the CUSO,above-market interest rate returns, a share in the profits, boardseats, investment guidance and must maintain a minimum level ofloans, said Mossman, who is pictured at left.

The second tier is for those credit unions that are just seekingabove-market interest rate returns.

CU Times asked one lending veteran who attended thebreakout session what he thought of Financu's slot machine leasingprogram.

“You would think this type of business would raise all kinds ofred flags but on the surface, it looks like it could work,” hesaid.

Mossman said later this year, Financu plans to open upopportunities in solar projects, bulk food and small equipmentfinancing.

Another firm exploring relatively new territory is QuarterSpot,which provides business loans for amounts smaller than traditionalfinancing with shorter terms. The loans are can be offered withoutpersonal guarantees or credit checks, according to the company. Allunderwriting decisions are based on the financial health of abusiness and its ability to repay a loan.

Loan amounts start at $5,000 and go up to $150,000. The averageloan is $35,000, said Adam Cohen, chairman and CEO ofQuarterSpot.

Right now, he said he's seeing more loans in the $25,000 to$100,000 range. The typical term and where most of the demand isoccurring is between six and nine months; however, the company hasdone three-month terms, he noted. Amortized interest rates canreduce borrowing costs by as much as 85%.

“We don't require personal guarantees, but that just allowscredit unions to extend the scope for your members,” Cohen toldattendees. “We can do renewals and the proceeds from the loans canbe used to pay off debts.”

QuarterSpot is also looking to partner with credit unions, Cohensaid. The company can provide a link on its site to a creditunion's site. A referral fee is paid to the credit union or CUSOpartner, and they are given a choice to charge between 1% and 3%.QuarterSpot also provides marketing communication packages on itssmall business loan program for credit unions to share withmembers.

When QuarterSpot launched its online business lending platformlast June, Cohen said even though small businesses employ nearlyhalf of America and account for half of GDP, most cannot get a bankloan.

“They are often forced to accept extremely high rates and feesfrom alternative sources, and owners risk losing their personalbelongings and damaging their personal credit if things don't workout,” Cohen said at the time.

One long-time niche lender is the National Cooperative Bankbased in Washington. Created in 1978 under the National ConsumerCooperative Bank Act, the entity has $1.8 billion in assets, and$5.7 billion in assets under management when combined with theassets managed for all of its investors, said Patrick Connealy,senior vice president.

Solar projects have been one of NCB's key niches for years. Thecooperative bank has $10.5 million in solar loan participationswith a credit union California, and $225 million in commercial realestate participations with credit unions in the Golden State aswell as in Alaska and Arizona.

Other core niches include community-owned housing,community-driven healthcare, retailer-owned grocers, small businessco-ops, and consumer-owned credit unions and CUSOs, Connealysaid.

Of the NCB's total deposits, 35% or $616 million comes fromcredit unions, he pointed out. More than 650 credit unions, leaguesand CUSOs are partners.

Agricultural co-ops, warehouse lines of credit for indirect autoloans and residential loan sales and participations with CUSOs andcredit unions in California, Georgia, Michigan and Marylandcontinue to be strong drivers too, according to Connealy.

Read our completeconference coverage:

What Time is the 3 O'Clock Parade?

nCino Chosen 'Next Big Idea'

'Shark Tank' Exec Says Expect to be Breached

CUSO Exams: Good, Bad & Ugly

How to Build a Compliance CUSO

Secrets to Mortgage Lending Profitability

CU Benefits Alliance, America First Take Honors

NCUA: Get a Blanket MBL Waiver