§ 5001.121 Eligible uses of loan funds. Guaranteed loan funds can only be used for the items specified in this section. In addition, RD may allow a recipient of a loan guarantee under this Part to use up to 10 percent of project funds to construct, improve, or acquire broadband infrastructure related to the project financed, subject to the requirements of 7 CFR part 1980, subpart M. ( a ) *CF projects.* Guaranteed loan funds for an essential CF project receiving a loan guarantee under § 5001.1 may be used to pay the expenses identified in paragraphs (a)(1) through (3) of this section. ( 1 ) When necessary to ensure the successful operation or protection of the project authorized in § 5001.103, subpart B: ( i ) Costs for the construction or relocation of public buildings, roads, bridges, fences, utilities, or to make other public improvements; and
( ii ) Costs for the relocation of private buildings, roads, bridges, fences, or utilities, and other private improvements.
( 2 ) To pay the cost of conduit, such as pipe, tube, or tile for protecting electric wires or cables, and its installation in conjunction with financing facilities authorized in § 5001.103, subpart B, when the cost of the conduit is less than 25 percent of the total project cost. The Borrower must be the owner of the conduit. The conduit must be installed at the time of project construction and must be for public use.
( 3 ) When necessary as part of a guaranteed loan to finance a project: ( i ) Guarantee fees, as determined under § 5001.454;
( ii ) Lender fees, as provided in § 5001.403;
( iii ) Professional service fees and charges provided the Agency agrees that the amounts are reasonable and customary in the area;
( iv ) Interest on guaranteed loans until the facility is self-supporting, but not for more than three years; interest on guaranteed loans secured by general obligation bonds until tax revenues are available for payment, but not for more than two years; and interest on interim financing;
( v ) Costs of acquiring interests in land, rights (*e.g.,* water rights, leases, and permits), rights-of-way, and other evidence of land or water control necessary for development of the project;
( vi ) Costs of purchasing or renting equipment necessary to install, maintain, extend, protect, operate, or utilize facilities;
( vii ) Obligations for construction worked performed prior to filing an Application with the Agency. Construction work must not be started (and obligations for such work or materials must not be incurred) before the conditional commitment is issued. If there are compelling reasons for proceeding with construction before the conditional commitment is issued, lenders may request Agency approval to pay such obligations and not jeopardize receipt of a loan guarantee from the Agency. Such request must comply with the following conditions: ( A ) Provide conclusive evidence that the contract was entered into without intent to circumvent the Agency regulations, including but not limited to 7 CFR part 1970;
( B ) Modify the outstanding contract to conform to the provisions of this part. When this is not possible, modifications will be made to the extent practicable and, at a minimum, the contract must comply with all State and local laws and regulations as well as statutory requirements and Executive Orders related to the Agency guarantee.
( C ) When construction is complete and it is impracticable to modify the contract, the borrower and lender must provide a certification by an engineer or architect that any construction performed complies fully with the plans and specifications; and
( D ) The borrower and the contractor must have complied with all statutory and Executive Order requirements related to the Agency guarantee for construction already performed even though the requirements may not have been included in the contract documents.
( 4 ) Refinancing in accordance with § 5001.102(d).
( b ) *WWD projects.* Guaranteed loan funds for a WWD project receiving a loan guarantee may be used to pay the expenses identified in paragraphs (b)(1) through (10) of this section when they are a necessary part of the WWD project. ( 1 ) Guarantee fees, as determined under § 5001.454.
( 2 ) Lender fees, as provided in § 5001.403.
( 3 ) Professional service fees and charges provided the Agency approves the amounts as reasonable and customary in the area.
( 4 ) Costs of acquiring interests in land, rights (*e.g.,* water rights, leases, permits, rights-of-way), and other evidence of land or water control or protection necessary for development of the project.
( 5 ) Purchasing or renting equipment necessary to install, maintain, extend, protect, or operate the project.
( 6 ) Cost of additional borrower labor and other expenses necessary to install and extend service.
( 7 ) Interest incurred during construction in conjunction with interim financing.
( 8 ) Initial operating expenses, including interest, for a period ordinarily not exceeding one year when the borrower is unable to pay such expenses.
( 9 ) The purchase of existing facilities when it is necessary either to improve service or prevent the loss of service.
( 10 ) Purchase of equipment to operate, maintain, or protect facilities.
( 11 ) Refinancing in accordance with § 5001.102(d),
( c ) *B&I projects.* Guaranteed loan funds for a project receiving a loan guarantee under § 5001.1 may be used to pay the expenses identified in paragraphs (c)(1) through (12) of this section. ( 1 ) Purchase and development of land, buildings, and associated infrastructure for commercial or industrial properties, including expansion or modernization.
( 2 ) Business acquisitions provided that jobs will be created or saved. A business acquisition is considered the acquisition of an entire business, not a partial stock acquisition in a business. However, acquisition or change of ownership between existing owners is an eligible use of loan funds when the remaining owner(s) held their ownership and actively participated in the business operation for at least the past 24 months and the selling owner will not retain any ownership interest in the business directly or indirectly including through other entities or trusts or property rights.
( 3 ) Purchase of machinery and equipment.
( 4 ) Startup costs, working capital, inventory, and supplies in the form of a permanent working capital term loan.
( 5 ) Pollution control and abatement.
( 6 ) Takeout of interim financing: Guaranteeing a loan that provides for permanent, long-term financing after project completion to pay off a lender's interim loan will not be treated as debt refinancing provided that the lender submits a complete request for preliminary eligibility review or complete application that proposes such interim financing prior to closing the interim loan. The borrower must take no action until the conclusion of the environmental review process prior to any action that would have an adverse effect on the environment or limit the choices of any reasonable alternatives to be considered by the Agency.
( 7 ) Guarantee fees, as determined under § 5001.454.
( 8 ) Lender fees, as determined under § 5001.403.
( 9 ) Professional service fees and charges, provided the Agency approves the amounts as reasonable and customary in the area and fees for construction permits and licenses.
( 10 ) Feasibility studies and business plans.
( 11 ) Interest (including interest on interim financing) during the period before the first principal payment becomes due or when the facility becomes income producing, whichever is earlier.
( 12 ) Refinancing in accordance with § 5001.102(d).
( d ) *REAP projects.* Guaranteed loan funds for a Project receiving a loan guarantee under REAP may be used to pay the expenses associated with the items identified in paragraphs (d)(1) through (14) of this section, provided such items are directly related to and their use and purpose are limited to the RES, EEI, or EEE project. The expenses associated with the items specified in paragraphs (d)(8) through (11) of this section cannot exceed more than ten percent of the loan amount. ( 1 ) Purchase and installation of new or refurbished RES.
( 2 ) Purchase and installation of energy efficient equipment and systems by eligible agricultural producers.
( 3 ) Construction, retrofitting, replacement, and improvements.
( 4 ) Energy efficiency improvements (EEI) identified by vendor/installer certification or in the applicable energy assessment or energy audit.
( 5 ) Fees for construction permits and licenses, including fees required by an interconnection agreement.
( 6 ) Guarantee fees, as determined under § 5001.454.
( 7 ) Professional service fees and charges related to the project, which may include non-deferred developer fees, provided the Agency approves the amounts as reasonable and customary in the area.
( 8 ) Lender fees, as provided in § 5001.403.
( 9 ) Working capital, which may include interest on interim financing, debt reserves, rent payments, insurance, and packaging and origination fees.
( 10 ) Land acquisition.
( 11 ) Energy assessments, energy audits, technical reports, business plans, and feasibility studies completed and acceptable to the Agency, provided no portion was financed by any other Federal or State grant or payment assistance, including, but not limited to, a REAP energy audit or renewable energy development assistance grant.
( 12 ) For an eligible RES project in which a residence is closely associated with the rural small business or agricultural operation, the installation of a second meter to separate the residence from the portion of the project that benefits the rural small business or agricultural operation, as applicable.
( 13 ) Land, building, and equipment for an existing RES.
( 14 ) Refinancing outstanding debt when— ( i ) The original purpose of the debt being refinanced meets the eligible project requirements of § 5001.106, § 5001.107 or § 5001.108, as applicable, of this part;
( ii ) Debt being refinanced does not exceed 50 percent of the total use of funds in the new REAP guaranteed loan;
( iii ) Refinancing is necessary to improve cash flow and viability of the project;
( iv ) At the time of application, the loan being refinanced has been current for at least the past 6 months (unless such status is achieved by the lender forgiving the borrower's debt); and
( v ) The lender is providing better rates or terms for the loan being refinanced.
[85 FR 42518, July 14, 2020, as amended at 85 FR 62197, Oct. 2, 2020; 86 FR 70356, Dec. 10, 2021]