[C]assie Polhemus is CEO of the Vermont Economic Development Authority, a job she took on in February after working at VEDA for six years.
VEDA is a quasi-public lender that was created by the Legislature in 1974 to provide low-cost loans to Vermont businesses. VEDA loans money in conjunction with banks and other lenders, including the U.S. Department of Agriculture, and reports it has provided $2.5 billion in financing to Vermont entrepreneurs, farmers, manufacturers, and others. It has about $300 million in assets.
VEDA doesn’t rely on state money. But it does get specific appropriations from the Legislature; lawmakers are now debating a measure that would include money for VEDA to make loans for rural broadband programs. The state also provides a form of guarantee that VEDA can leverage to get a lower interest rate when it borrows money from lenders like TDBank and JPMorgan for its own lending program.
Polhemus spent some time talking about VEDA with VTDigger. The interview has been edited for length and clarity.
VTDigger: Does VEDA compete with banks?
Cassie Polhemus: The way that the statute is written, it is intended that we’re not taking away the business from the bank. We act like a bank in that we borrow from other financial institutions, and then we lend out.
Banks provide the private capital, and we come in as the subordinated lender. We need the banks involved because typically, on the commercial side anyway, we can’t do a deal without a bank. We can only lend up to a million and a half unless there’s an energy component, and then it’s $2 million. A lot of commercial projects might be larger than that. For agriculture, it can be up to $5 million, but we’ve never gone anywhere near that.
VTD: Does the state guarantee VEDA’s loans?
CP: In order to be able to borrow at a lower rate (than a small business could), we need some sort of enhancement, and that is the moral obligation that the treasurer allows us to have.
If you think of the state providing a guarantee on debt, it’s not full faith and credit, which would guarantee the loan. Moral obligation is a step behind that.
But it’s treated as close enough so it allows us to borrow money from the capital markets. JP Morgan or TD Bank or whoever it is knows that behind VEDA is the state, and the state is saying, “We’ll back it up,” but it’s not the full faith and credit, it’s the moral obligation.
If all goes to heck, and all our loans defaulted, our lenders would say, “OK, state of Vermont, VEDA has defaulted; we are calling on you.”
VTD: Has the state ever helped repay a lender under these circumstances?
CP: We have enough capacity to handle the default rates on individual loans. This would only be if we had massive defaults, like if the entire dairy portfolio plus a bunch of commercial stuff all went to heck.
VTD: What kind of borrowers do you typically see?
CP: A typical loan on the commercial side would be a business that wants to buy a new location. Or if you want to expand and also need new equipment or machinery or leasehold improvements, those are all very typical deals.
We don’t do investment real estate. If it was a developer looking for tenants to fill that space, that’s not a VEDA-eligible project.
Sixty percent of our agriculture portfolio is dairy. It was 90 percent or so when we first started doing agriculture 25 years ago. We have been working on diversifying the portfolio, and dairy farmers, even if they are still doing dairy, they are looking ways of adding to their sources of income.
VTD: When did VEDA start accepting loan applications for hemp businesses?
CP: After our last board meeting, March 29. We were sitting on the sidelines, but based on the 2014 Farm Bill, our lenders – like TDBank and JPMorgan – have looked at the Vermont state pilot program and said it meets the requirements and so they are comfortable with it. The USDA says you can’t use federal money; they said, “We are not telling you whether you can or can’t use other money; we don’t give an opinion on that. But you can’t use federal money.”
We can accept applications now, but cautiously. We are not going out and advertising. We’ve been getting a lot of inquiries.
VTD: What do you tell people who call?
CP: If someone called today and inquired, we would say, “Yes, we can accept an application, but here are the conditions: We need to know that you have a market to sell to.” That’s key, because we’re only financing the growing and drying; we’re not financing processors yet. But more importantly, you need to show us a market for hemp because while there are probably a lot of registered processors in the state of Vermont, how many are actively buying hemp?
And we need to know they have a decent price. It’s all evolving but with just the little I know, the price has also been somewhat volatile as well.
VTD: Why is this based on the 2014 Farm Bill and not the 2018 Farm Bill?
CP: The state has to submit its new hemp regulations to the USDA to meet the requirements of the new farm bill. USDA hasn’t written its rules and regulations either.
VTD: How do you feel about this market?
CP: It’s nice to see there is another potential market out there for Vermont farmers … I hope that it turns out to be a good one. But I think it’s still evolving, and it’ll be interesting to see how on the processing side, things evolve. Who regulates that, and where is the risk, and how do you mitigate it?
So there is still a lot of grey area and a lot of unknowns, but I don’t think that’s reason enough to say we don’t want to do it. There’s a new market, a new opportunity, and it kinds of fits into the Vermont brand I guess, the Vermont landscape; it’s green, it’s who we are. I can’t think of a reason why we shouldn’t at least explore it.