Editorial Note on Part 762
Editorial Note: Nomenclature changes to part 762 appear at 72 FR 63297, Nov. 8, 2007.

§ 762.125 Financial feasibility. ( a ) *General.* Except for streamlined CL guarantees (see § 762.110(f)), the following requirements must be met: ( 1 ) Notwithstanding any other provision of this section, PLP lenders will follow their internal procedures on financial feasibility as agreed to by the Agency during PLP certification.
( 2 ) The applicant's proposed operation must project a feasible plan.
( 3 ) For standard eligible lenders, the projected income and expenses of the borrower and operation used to determine a feasible plan must be based on the applicant's proven record of production and financial management.
( 4 ) For CLP lenders, the projected income and expenses of the borrower and the operation must be based on the applicant's financial history and proven record of financial management.
( 5 ) For those farmers without a proven history, a combination of any actual history and any other reliable source of information that are agreeable with the lender, the applicant, and the Agency will be used.
( 6 ) The cash flow budget analyzed to determine a feasible plan must represent the predicted cash flow of the operating cycle.
( 7 ) Lenders must use price forecasts that are reasonable and defensible. Sources must be documented by the lender and acceptable to the Agency.
( 8 ) When a feasible plan depends on income from other sources in addition to income from owned land, the income must be dependable and likely to continue.
( 9 ) The lender will analyze business ventures other than the farm operation to determine their soundness and contribution to the operation. Except for CL, guaranteed loan funds will not be used to finance a nonfarm enterprise. Nonfarm enterprises include, but are not limited to: raising earthworms, exotic birds, tropical fish, dogs, or horses for nonfarm purposes; welding shops; boarding horses; and riding stables.
( 10 ) When the applicant has or will have a cash flow budget developed in conjunction with a proposed or existing Agency direct loan, the two cash flow budgets must be consistent.
( b ) *Estimating production.* Except for streamlined CL guarantees (see § 762.110(f)), the following requirements must be met: ( 1 ) Standard eligible lenders must use the best sources of information available for estimating production in accordance with this subsection when developing cash flow budgets.
( 2 ) Deviations from historical performance may be acceptable, if specific to changes in operation and adequately justified and acceptable to the Agency.
( 3 ) For existing farmers, actual production for the past 3 years will be utilized.
( 4 ) For those farmers without a proven history, a combination of any actual history and any other reliable source of information that are agreeable with the lender, the applicant, and the Agency will be used.
( 5 ) When the production of a growing commodity can be estimated, it must be considered when projecting yields.
( 6 ) When the applicant's production history has been so severely affected by a declared disaster that an accurate projection cannot be made, the following applies: ( i ) County average yields are used for the disaster year if the applicant's disaster year yields are less than the county average yields. If county average yields are not available, State average yields are used. Adjustments can be made, provided there is factual evidence to demonstrate that the yield used in the farm plan is the most probable to be realized.
( ii ) To calculate a historical yield, the crop year with the lowest actual or county average yield may be excluded, provided the applicant's yields were affected by disasters at least 2 of the previous 5 consecutive years.
( c ) *Refinancing.* Loan guarantee requests for refinancing must ensure that a reasonable chance for success still exists. The lender must demonstrate that problems with the applicant's operation that have been identified, can be corrected, and the operation returned to a sound financial basis.
( d ) *EZ Guarantee feasibility.* Notwithstanding any other provision of this section: ( 1 ) The Agency will evaluate EZ Guarantee application financial feasibility using criteria determined and announced by the Agency on the FSA Web site (*www.fsa.usda.gov*).
( 2 ) *EZ Guarantee* applications that satisfy the criteria will be determined to meet the financial feasibility standards in this section.
( 3 ) *EZ Guarantee* applications that do not satisfy the criteria will require further documentation as determined by the Agency and announced on the FSA Web site (*www.fsa.usda.gov*).
[64 FR 7378, Feb. 12, 1999, as amended at 66 FR 7567, Jan. 24, 2001; 75 FR 54014, Sept. 3, 2010; 81 FR 72691, Oct. 21, 2016]