(a) Physical losses—(1) Real estate losses. EM loan funds for real estate physical losses may only be used to repair or replace essential property damaged or destroyed as a result of a disaster as follows:

1. (i) For any FO purpose, as specified in § 764.151, except subparagraph (e) of that section;
2. (ii) To establish a new site for farm dwelling and service buildings outside of a flood or mudslide area; and
3. (iii) To replace land from the farm that was sold or conveyed, if such land is necessary for the farming operation to be effective.

4. (2) Chattel losses. EM loan funds for chattel physical losses may only be used to repair or replace essential property damaged or destroyed as a result of a disaster as follows:

   1. (i) Purchase livestock, farm equipment, quotas and bases, and cooperative stock for credit, production, processing, or marketing purposes;
   2. (ii) Pay customary costs associated with obtaining and closing a loan that an applicant cannot pay from other sources (e.g., fees for legal, architectural, and other technical services, but not fees for agricultural management consultation, or preparation of Agency forms);
   3. (iii) Repair or replace household contents damaged in the disaster;
   4. (iv) Pay the costs to restore perennials, which produce an agricultural commodity, to the stage of development the damaged perennials had obtained prior to the disaster;
   5. (v) Pay essential family living and farm operating expenses, in the case of an operation that has suffered livestock losses not from breeding stock, or losses to stored crops held for sale; and

   6. (vi) Refinance farm-related debts other than real estate to improve farm profitability, if the applicant has refinanced direct or guaranteed loans four times or fewer and one of the following conditions is met:

      1. (A) A designated or declared disaster caused the need for refinancing; or
      2. (B) The debts to be refinanced are owed to a creditor other than the USDA.

(b) Production losses. EM loan funds for production losses to agricultural commodities (except the losses associated with the loss of livestock) may be used to:

1. (1) Pay costs associated with reorganizing the farm to improve its profitability except that such costs must not include the payment of bankruptcy expenses;
2. (2) Pay annual operating expenses, which include, but are not limited to, feed, seed, fertilizer, pesticides, farm supplies, and cash rent;
3. (3) Pay 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;
4. (4) Pay borrower training costs required or recommended by the Agency;
5. (5) Pay essential family living expenses;

6. (6) Refinance farm-related debts other than real estate to improve farm profitability, if the applicant has refinanced direct or guaranteed loans four times or fewer and one of the following conditions is met:

   1. (i) A designated or declared disaster caused the need for refinancing; or
   2. (ii) The debts to be refinanced are owed to a creditor other than the USDA; and
7. (7) Replace lost working capital.