[Code of Federal Regulations] [Title 7, Volume 7] [Revised as of January 1, 2006] From the U.S. Government Printing Office via GPO Access [CITE: 7CFR762.125] [Page 142-143] TITLE 7--AGRICULTURE CHAPTER VII--FARM SERVICE AGENCY, DEPARTMENT OF AGRICULTURE PART 762_GUARANTEED FARM LOANS--Table of Contents Sec. 762.125 Financial feasibility. (a) General. (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 loan applicant's proposed operation must project a feasible plan as defined in Sec. 762.102(b). (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 loan 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 loan 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 loan 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. [[Page 143]] 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. 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 loan 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. (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 loan 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 loan 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 loan 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 loan 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 loan applicant's operation that have been identified, can be corrected, and the operation returned to a sound financial basis. [64 FR 7378, Feb. 12, 1999, as amended at 66 FR 7567, Jan. 24, 2001]