Section 5001.122 - [Effective 11/29/2024] Ineligible uses of loan fundsProjects that receive a loan guarantee under this part cannot use the guaranteed loan funds for those expenses or purposes identified in paragraphs (a) through (n) of this section and for any other item the Agency identifies in accordance with § 5001.10 .
(a) Payment in excess of actual costs (e.g., profit, overhead, indirect costs, and wages to owners) incurred by the contractor or other service provider on a contract or agreement that has been entered into at less than an arm's length transaction or has a potential for a conflict of interest. In situations where there is common ownership or an otherwise closely related company is being paid to do construction or installation work for a borrower, only documented costs associated with the construction or installation can be paid with guaranteed loan funds and cannot include any profit or wages to such related person.(b) Notwithstanding § 5001.102(d) , payment on any other Federal loan or debt.(c) Payment of a Federal judgment, State or Federal tax lien, or other debt owed to the United States.(d) Loan finder or broker fees.(e) Refinancing debt that is owned by a loan packager or broker or their respective affiliates.(f) For loans as specified under CF and WWD, costs normally provided by a business or industrial user (e.g., wastewater pretreatment).(g) For loans as specified under CF and WWD, any portion of the cost of a project that does not serve a rural area.(h) Rental for the use of equipment or machinery owned by the borrower.(i) For purposes not directly related to operating and maintaining the project.(j) Any EEI not identified in the applicable energy assessment or energy audit.(k) Agricultural tillage equipment, used equipment, and vehicles are ineligible for loans as specified under REAP. Costs include costs for RES and/or EEI projects that are used to improve a vehicle's ability to propel itself are ineligible uses for loan funds. For example, modifying an existing vehicle's engine to run on renewable fuels or replacing an older vehicle with a new more efficient vehicle are ineligible uses of loan funds. Projects similar to purchasing and installing solar panels to power a refrigerator or the replacement of a refrigerator for a more efficient one on a food truck may be considered eligible uses of loan funds if all other borrower and project eligibility requirements are met.(l) Distribution or payment to an individual or entity that will retain an ownership interest in the borrower or distribution or payment to a beneficiary of the borrower. Distribution or payment to a member of the immediate family of an owner, partner, or stockholder will not be permitted, except for change in ownership interest and the Agency determines the price paid to be reasonable based upon an appraisal. This prohibition does not apply to transfers of ownership for ESOPs or worker cooperatives, to cooperatives where the cooperative pays the member for product or services, or where member stock is transferred among members of the cooperative in accordance with § 5001.140 of this part. This paragraph does not preclude the former owner from remaining an employee of the business during a reasonable transition period. The payment of personal debt is considered a distribution or payment to an owner, except for the refinancing of debt for an asset that is used in the business when the owner is a co-borrower on the loan.(m) For loans as specified under CF, initial operating expenses, short-term, working capital or operating loans; or annual recurring costs, including purchases or rentals that are generally considered to be operating and maintenance expenses.(n) Lease payments, including lease to own or capitalized leases. This does not preclude a REAP applicant from leasing out REAP financed and installed equipment to a third party (lessee) such as a non-profit, school district, or municipal government. The third party (lessee) must directly utilize the equipment to fulfill the statutory purposes of REAP, to generate renewable energy or provide energy savings. The borrower must maintain ownership and control of the project for the entire useful life of the project, including site, income and expenses via the lease agreement. Additionally, all other REAP requirements, must be reviewed in this scenario to ensure complete eligibility is obtained with a lease in place. This includes, but is not limited to, project eligibility, including prohibitions on residential use and other prescribed eligible project costs. A REAP applicant may lease out a commercial building, improved with REAP funds, to various tenants. This may include an office complex in which a Federal Government Agency is a tenant. This is allowable as long as conflict of interest requirements are complied with.85 FR 42518, 10/1/2020; 89 FR 79713, 11/29/2024