Section 5001.121 - Eligible uses of loan fundsGuaranteed loan funds can only be used for the items specified in this section and any other items the Agency identifies in the Federal Register . 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 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 , when the cost of the conduit is less than 25 percent of the total project cost and the conduit is not essential to the operation of the eligible essential facility or service to be financed. 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. A project example is construction of a road. While work is being completed in preparation for the eligible road project, the borrower takes advantage of the construction to install underground conduit in anticipation of installing fiber optic cables in the near future.(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 when the borrower obtains interim financing for the eligible project, the guaranteed loan proceeds may be used to pay off the interim financing as well as the 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 following:(1) Constructing, extending, or otherwise improving an eligible facility outlined in § 5001.104(a) , and may include the cost of materials and labor in addition to the following: (i) Cost 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.(ii) Purchasing or renting equipment necessary to construct, or extend the facility services, for owner construction.(iii) Cost of additional borrower labor and other expenses necessary to install, extend, or protect the facility.(iv) Interest incurred during construction in conjunction with interim financing, and the payoff of the interim loan with the permanent financing.(v) Initial operating expenses, including interest, for a period ordinarily not exceeding one year when the borrower is unable to pay such expenses, for construction of a new facility. The lender must provide justification and the Agency must document the reason for granting the longer time.(vi) Professional service fees and charges provided the Agency approves the amounts as reasonable and customary in the area.(vii) Water reuse, renewable energy, and other construction projects to improve the sustainability or resilience of an eligible facility.(2) Stand-alone projects not involving construction may also be made for the following purposes: (i) 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 the maintenance or operation of the facility.(ii) Purchase of equipment to operate, maintain, or protect facilities, such as computers, generators, vehicles, backhoes, meters, pipe, and pumps, etc. The purchase of equipment must include installation and not be for the sole purpose of increasing inventory. Owner construction or installation is an option.(iii) The purchase or acquisition of existing facilities when it is necessary either to improve service or prevent the loss of service.(iv) The purchase and installation of RESs for use by an eligible facility (even if it does not include construction).(v) Planning, studies, and designs for incorporating renewable energy or water reuse, or to improve the sustainability or resilience of an eligible facility.(vi) The Agency 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 subject to the requirements of 7 CFR part 1980, subpart M.(vii) Professional service fees for engineering and environmental services that provide services for preplanning evaluation procedures, such as leak detection, or inflow and infiltration analysis, as reasonable and customary in the area to evaluate an existing facility's need for improvements or repairs. Such services will be in accordance with professional service agreements with copies of analysis to be provided in the application package for such reports as preliminary engineering report, final design with plans and specifications, bidding documents, or the completed environmental review analysis.(viii) Refinancing in accordance with § 5001.102(d) .(3) Other expenses related to any project under (b)(1) and (2), including: (i) Guarantee fees, as determined under § 5001.454 .(ii) Lender fees, as provided in § 5001.403 .(iii) Payoff of interim financing including principal and interest.(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. Interim financing is typically used to pay costs associated with a planned project, such as construction or installation of equipment, however, the Agency will consider, on a case-by-case basis, other reasons to use interim financing. The term for interim financing loans should be for the construction period plus a reasonable time for the business to begin generation of working capital to amortize the loan. Guaranteed promissory notes that do not convert the interim financing payment schedule to an amortizing permanent schedule in the same note are not allowed. In certain cases, the applicant lender may use interim financing to pay-off a borrower's maturing loan with another lender if it is in the best interests of the borrower. The takeout of interim financing is only eligible when the permanent loan on which the guarantee will be placed takes out the interim financing that financed the planned project and when the lender submits a complete preliminary eligibility review or application to the Agency that proposes the interim financing prior to closing the interim loan. If the interim financing does not meet these requirements, it is considered debt refinancing and must comply with § 5001.102(d) . If the guarantee is issued prior to construction, the promissory note must contain and convert the terms of the interim financing to permanent financing. The Agency will not guarantee takeout of interim financing loans that prevent a meaningful environmental assessment prior to Agency loan approval. Even for projects with interim financing, the Agency cannot approve the loan nor issue a conditional commitment until the environmental process is complete. The Agency assumes no responsibility or obligation for interim loans.(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. Ten percent is an aggregate amount, not ten percent for each item. (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.(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 long-term debt. It is not considered refinancing if loans were structured as construction or bridge loans for short-term financing needs (interim financing) in preparation for a long-term loan. Refinancing will be considered 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 85 FR 42518 , 10/1/2020; as amended at 85 FR 62197 , 10/2/2020; 86 FR 70356 , 12/10/2021; 89 FR 79712 , 11/29/2024