Loan funds must not be used for any of the following purposes:

To fund operating expenses of the applicant;

To fund any costs associated with the project incurred prior to the date on which notification of a complete application is issued (see § 1738.205), except for eligible pre-loan expenses (see § 1738.51(e)).

To fund the acquisition of the stock of an affiliate.

To fund the purchase or acquisition of any facilities or equipment of an affiliate, unless approved by the Agency in writing. The Agency may approve such a purchase or acquisition if the applicant demonstrates that the purchase or acquisition will involve an arms-length transaction and that the cost is advantageous for the applicant.

To fund the purchase of CPE and the installation of associated inside wiring, unless the CPE will be owned by the applicant throughout its economic life: or

The applicant pledges additional collateral that is not currently owned by the applicant, acceptable to the Agency. Such collateral must have a value at least equal to the purchase price of the CPE and cannot be purchased with loan funds; or

The applicant establishes a revolving fund for the initial purchase of CPE to be sold, and as CPE is sold to the customer, at least the applicant's cost of such equipment is returned to the revolving fund and used to purchase additional CPE units.

To fund the purchase or lease of any vehicle unless it is used primarily in construction or system improvements.

To fund the cost of systems or facilities that have not been designed and constructed in accordance with the loan contract and other applicable requirements.

To fund broadband facilities leased under the terms of an operating lease.

To fund merger or consolidation of entities.