(a) Operating Loan purposes.
(1) Loan funds disbursed under an OL guarantee may only be used for the following purposes:
(i) Payment of costs associated with reorganizing a farm to improve its profitability;
(ii) Purchase of livestock, including poultry, and farm equipment or fixtures, quotas and bases, and cooperative stock for credit, production, processing or marketing purposes;
(iii) Payment of annual farm operating expenses, examples of which include feed, seed, fertilizer, pesticides, farm supplies, repairs and improvements which are to be expensed, cash rent and family subsistence;
(iv) Payment of scheduled principal and interest payments on term debt provided the debt is for authorized FO or OL purposes;
(v) Other farm needs;
(vi) Payment of costs associated with land and water development for conservation or use purposes;
(vii) Refinancing indebtedness incurred for any authorized OL purpose, when the lender and applicant can demonstrate the need to refinance;
(viii) Payment of loan closing costs;
(ix) Payment of costs associated with complying with Federal or State-approved standards under the Occupational Safety and Health Act of 1970 (29 U.S.C. 655, 667). This purpose is limited to applicants who demonstrate that compliance or non-compliance with the standards will cause them substantial economic injury; and
(x) Payment of training costs required or recommended by the Agency.
(2) Loan funds under a line of credit may be advanced only for the following purposes:
(i) Payment of annual operating expenses, family subsistence, and purchase of feeder animals;
(ii) Payment of current annual operating debts advanced for the current operating cycle; (Under no circumstances can carry-over operating debts from a previous operating cycle be refinanced);
(iii) Purchase of routine capital assets, such as replacement of livestock, that will be repaid within the operating cycle;
(iv) Payment of scheduled, non-delinquent, term debt payments provided the debt is for authorized FO or OL purposes.
(v) Purchase of cooperative stock for credit, production, processing or marketing purposes; and
(vi) Payment of loan closing costs.
(b) Farm ownership loan purposes. Guaranteed FO are authorized only to:
(1) Acquire or enlarge a farm; examples include, but are not limited to, providing down payments, purchasing easements for the applicant's portion of land being subdivided, and participating in the down payment FO program under part 764 of this chapter;
(2) Make capital improvements; examples include, but are not limited to, the construction, purchase, and improvement of a farm dwelling, service buildings and facilities that can be made fixtures to the real estate, (Capital improvements to leased land may be financed subject to the limitations in § 762.122);
(3) Promote soil and water conservation and protection; examples include the correction of hazardous environmental conditions, and the construction or installation of tiles, terraces and waterways;
(4) Pay closing costs, including but not limited to, purchasing stock in a cooperative and appraisal and survey fees; and
(5) Refinancing indebtedness incurred for authorized FO and OL purposes, provided the lender and applicant demonstrate the need to refinance the debt.
(c) CL purposes. Loan funds disbursed under a CL guarantee may be used for any conservation activities included in a conservation plan or Forestry Stewardship Management Plan including, but not limited to:
(1) The installation of conservation structures to address soil, water, and related resources;
(2) The establishment of forest cover for sustained yield timber management, erosion control, or shelter belt purposes;
(3) The installation of water conservation measures;
(4) The installation of waste management systems;
(5) The establishment or improvement of permanent pasture;
(6) Other purposes including the adoption of any other emerging or existing conservation practices, techniques, or technologies; and
(7) Refinancing indebtedness incurred for any authorized CL purpose, when refinancing will result in additional conservation benefits.
(d) Highly erodible land or wetlands conservation. Loans may not be made for any purpose which contributes to excessive erosion of highly erodible land or to the conversion of wetlands to produce an agricultural commodity. A decision by the Agency to reject an application for this reason may be appealable. An appeal questioning whether the presence of a wetland, converted wetland, or highly erodible land on a particular property must be filed directly with the USDA agency making the determination in accordance with the agency's appeal procedures.
(e) Judgment debts. Loans may not be used to satisfy judgments obtained in the United States District courts. However, Internal Revenue Service judgment liens may be paid with loan funds.
[64 FR 7378, Feb. 12, 1999, as amended at 72 FR 63297, Nov. 8, 2007; 73 FR 74345, Dec. 8, 2008; 75 FR 54014, Sept. 3, 2010; 77 FR 15938, Mar. 19, 2012; 78 FR 65529, Nov. 1, 2013; 86 FR 43391, Aug. 9, 2021]