(a) Except as provided in paragraph (b), OL and ML used for OL purposes loan funds may only be used for:

(1) Costs associated with reorganizing a farm to improve its profitability;

(2) Purchase of livestock, including poultry, farm equipment or fixtures, quotas and bases, and cooperative stock for credit, production, processing or marketing purposes;

(3) Farm operating expenses, including, but not limited to, feed, seed, fertilizer, pesticides, farm supplies, repairs and improvements which are to be expensed, cash rent and family living expenses;

(4) Scheduled principal and interest payments on term debt provided the debt is for authorized FO or OL purposes;

(5) Other farm needs;

(6) Costs associated with land and water development, use, or conservation;

(7) Loan closing costs;

(8) Costs associated with Federal or State-approved standards under the Occupational Safety and Health Act of 1970 (29 U.S.C. 655 and 667) if the applicant can show that compliance or non-compliance with the standards will cause substantial economic injury;

(9) Borrower training costs required or recommended by the Agency;

(10) Refinancing farm-related debts other than real estate to improve the farm's profitability provided the applicant has refinanced direct or guaranteed OL loans four times or fewer and one of the following conditions is met:

(i) A designated or declared disaster caused the need for refinancing; or

(ii) The debts to be refinanced are owed to a creditor other than the USDA;

(11) Costs for minor real estate repairs or improvements, provided the loan is made primarily for agricultural purposes and can be repaid within 7 years. In the case of leased property, the applicant must have a lease to ensure use of the improvement over its useful life or to ensure that the applicant receives compensation for any remaining economic life upon termination of the lease.

(b) [Reserved]

(a) The applicant must comply with the general eligibility requirements established in § 764.101.

(b) The applicant and anyone who will sign the promissory note, except as provided in paragraph (c) of this section, must not have received debt forgiveness from the Agency on any direct or guaranteed loan.

(c) The applicant and anyone who will sign the promissory note, may receive direct OL loans to pay annual farm operating and family living expenses, provided that the applicant meets all other applicable requirements under this part, if the applicant:

(1) Received a write-down under section 353 of the Act;

(2) Is current on payments under a confirmed reorganization plan under Chapter 11, 12, or 13 of Title 11 of the United States Code; or

(3) Received debt forgiveness on not more than one occasion after April 4, 1996, resulting directly and primarily from a Presidentially-designated emergency for the county or contiguous county in which the applicant operates. Only applicants who were current on all existing direct and guaranteed FLP loans prior to the beginning date of the incidence period of a Presidentially-designated emergency and received debt forgiveness on that debt within 3 years after the designation of such emergency meet this exception.

(d) In the case of an entity applicant, the entity must be:

(1) Controlled by farmers engaged primarily and directly in farming in the United States; and

(2) Authorized to operate the farm in the State in which the farm is located.

(e) The applicant and anyone who will sign the promissory note, may close an OL in no more than 7 calendar years, either as an individual or as a member of an entity, except as provided in paragraphs (e)(1) through (4) of this section. The years may be consecutive or nonconsecutive, and there is no limit on the number of OLs closed in a year. Microloans made to a beginning farmer or a veteran farmer are not counted toward this limitation. Youth loans are not counted toward this limitation. The following exceptions apply:

(1) This limitation does not apply if the applicant and anyone who will sign the promissory note is a beginning farmer.

(2) This limitation does not apply if the applicant's land is subject to the jurisdiction of an Indian tribe, the loan is secured by one or more security instruments subject to the jurisdiction of an Indian tribe, and commercial credit is generally not available to such farm operations.

(3) If the applicant, and anyone who will sign the promissory note, has closed direct OL loans in 4 or more previous calendar years as of April 4, 1996, the applicant is eligible to close OL loans in any 3 additional years after that date.

(4) On a case-by-case basis, may be granted a one-time waiver of OL term limits for a period of 2 years, not subject to administrative appeal, if the applicant:

(i) Has a financially viable operation;

(ii) And in the case of an entity, the members holding the majority interest, applied for commercial credit from at least two lenders and were unable to obtain a commercial loan, including an Agency-guaranteed loan; and

(iii) Has successfully completed, or will complete within one year, borrower training. Previous waivers to the borrower training requirements are not applicable under this paragraph.

The applicant must comply with the general limitations established at § 764.102.

(a) Rates. (1) The interest rate is the Agency's Direct Operating Loan rate, available in each Agency office.

(2) The limited resource Operating Loan interest rate is available to applicants who are unable to develop a feasible plan at regular interest rates.

(3) The interest rate charged will be the lower rate in effect at the time of loan approval or loan closing.

(4) The Agency's Direct ML-OL interest rate on an ML to a beginning farmer or veteran farmer is available in each Agency office. The interest rate will be the lower of the regular direct OL interest rate in effect at the time of loan approval or loan closing, or 5 percent.

(b) Terms. (1) The Agency schedules repayment of OL loans made for annual farm operating and family living expenses when planned income is projected to be available.

(i) The term of the loan may not exceed 24 months from the date of the note, except as provided in paragraph (b)(1)(ii) of this section.

(ii) The term of the loan may exceed 24 months in unusual situations such as establishing a new enterprise, developing a farm, purchasing feed while crops are being established, marketing plans, or recovery from a disaster or economic reverse. In no event will the term of the loan exceed 7 years from the date of the note. Crops and livestock produced for sale will not be considered adequate security for such loans.

(2) The standard repayment term of all other OLs must be equal to the useful life of the security or 7 years, whichever is less. Repayment terms less than the standard term must be requested by the applicant in writing. In no event will the term of the loan exceed 7 years from the date of the note. Repayment schedules may include equal installments, or unequal or balloon installments if needed to establish a new enterprise, develop a farm, recover from a disaster or economic reversal, or reasonably increase cash flow margin to increase working capital reserves and savings, including reasonable savings for retirement and education. Notwithstanding any other provision of this section, repayment schedules must be designed to ensure the loan is fully secured for the life of the loan. Loans with balloon installments:

(i) Must be secured by an amount projected at the time of loan closing to be at least equal to the direct loan balance outstanding at the time the balloon installment comes due, which may exceed the additional security requirements of § 764.103(c) of this chapter. Total loan security in excess of the requirements of this provision (paragraph (b)(2)(i) of this section) will only be taken when it is not practicable to separate the security. Crops, livestock other than breeding stock, or livestock products produced are not adequate collateral for such loans.

(ii) Are only authorized when the applicant can project the ability to refinance or restructure the remaining debt at the time the balloon payment comes due based on the expected financial condition of the operation, the depreciated value of the collateral, and the principal balance on the loan.

(iii) Are not authorized when loan funds are used for real estate repairs or improvements.

(3) The first installment of an OL, for purposes other than annual farm operating and family living expenses, will be an interest-only installment scheduled 12 months from the date of loan closing. An alternative repayment agreement that schedules the first installment sooner than 12 months from the date of closing, or in an amount greater than interest-only, may be provided upon written request from the applicant, or if the Agency determines it necessary to ensure the loan is fully secured for the life of the loan.

(4) The minimum scheduled installments for the first 3 years of an OL, for purposes other than annual farm operating and family living expenses, must be the interest accrued on the principal balance. Interest-only installments may be permitted for additional years, if determined necessary by the Agency, to establish a new enterprise where production income is delayed, to develop a farm, or to recover from a disaster or economic reversal.

An OL loan must be secured:

(a) In accordance with §§ 764.103 through 764.106.

(b) Except for MLs or OLs made for the purpose of minor real estate repairs or improvements, by a:

(1) First lien on all property or products acquired or produced with loan funds;

(2) Lien of equal or higher position of that held by the creditor being refinanced with loan funds.

(c) For MLs used for OL purposes:

(1) For annual operating purposes, loans must be secured by a first lien on farm property or products having a security value of at least 100 percent of the loan amount.

(2) For loans made for purposes other than annual operating purposes or for the purpose of minor real estate repairs or improvements, loans must be secured by a first lien on farm property or products purchased with loan funds and having a security value of at least 100 percent of the loan amount.

(3) A lien on real estate is not required unless the value of the farm products, farm property, and other assets available to secure the loan is not at least equal to 100 percent of the loan amount.

(4) Notwithstanding the provisions of paragraphs (c)(1), (c)(2), and (c)(3) of this section, FSA will not require a lien on a personal residence.

(d) For OLs made for the purpose of minor real estate repairs or improvements, the Agency must obtain a lien on the real estate repaired or improved in accordance with the requirements of § 764.104, while also ensuring the provisions of § 764.103(b) requiring adequate security are satisfied.