7 CFR §1783.12

1. (a)Grant proceeds shall be used solely for the purpose of establishing the revolving loan fund to provide loans to eligible entities for:
   1. (1)Pre-development costs associated with proposed water and wastewater projects or with existing water and wastewater systems, and
   2. (2)Short-term costs incurred for replacement equipment, small-scale extension of services, or other small capital projects that are not part of the regular operations and maintenance activities of existing water and wastewater systems.
2. (b)A grant recipient may not use grant funds in any manner inconsistent with the terms of the grant agreement.