From Farm to Table: Understanding USDA Loans

Terrydale Capital

Jan 4, 2024 6 Min read

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USDA Loans have become a popular financing option for commercial real estate investors looking to invest in tertiary markets. These loans are offered through the United States Department of Agriculture (USDA) and are designed to help individuals and families purchase homes or commercial properties in rural areas. Tertiary markets themselves, are defined as smaller, less populated areas that are located away from larger metropolitan areas. In this blog, we will discuss what USDA loans are and how they can be a valuable alternative financing vehicle for tertiary market investors. 

What are USDA Loans?

USDA loans are a type of government-backed loan that are designed to help borrowers in rural areas purchase or refinance a residential or commercial property. The loan is backed by the USDA, meaning the government guarantees a portion of the loan. This guarantee reduces the risk for lenders and allows them to, in turn, offer better terms for borrowers.

There are two types of USDA loans: the USDA Rural Development Guaranteed Housing Loan and the USDA Rural Development Business and Industry Loan Guarantee. The Guaranteed Housing Loan is designed to help low-to-moderate income families purchase or refinance a residence in a rural area. The Business and Industry Loan Guarantee is designed to help businesses in rural areas obtain financing for their operations or expansion. 

Benefits of USDA Loans for CRE Investors

USDA loans offer several benefits for commercial real estate investors, particularly those looking to invest in tertiary markets.

  • Low Interest Rates

One of the main benefits of USDA loans is that they offer lower interest rates. These rates are typically lower than conventional loans, which can save investors over the life of the loan. Lower interest rates also means lower monthly payments, which allows for more financial flexibility and improves cash flow. 

  • Flexible Credit Requirements

USDA loans have flexible credit requirements, which mean that investors with less-than-perfect credit may still be eligible for financing. This can be particularly beneficial for investors just starting out or who have experienced financial setbacks in the past. Additionally, USDA loans do not require private mortgage insurance (PMI), which can be a significant cost savings for investors. 

  • No Down Payment Required

Another significant benefit of USDA loans is that they do not require a down payment. THis means that investors can finance 100% of the purchase price of the property, which can be a significant advantage in tertiary markets where property values may be lower compared to metropolitan areas. This can help investors preserve their capital and invest in more opportunities. 

  • Eligible Properties in Tertiary Markets

Tertiary markets are often underserved by traditional lenders, which can make it difficult for investors to obtain financing. However, USDA loans can be used to finance a wide range of commercial properties including multifamily, retail and industrial properties. 

  • Incentives for Job Creation

The USDA Rural Development Business and Industry Loan Guarantee offers incentives for businesses that create jobs in rural areas. This can be a significant advantage for commercial real estate investors who seek to develop or redevelop in tertiary markets. These incentives can include loan guarantees, reduced interest rates and other benefits. 

In Conclusion

USDA loans can be a valuable financing option for commercial real estate investors who are looking to dive into alternative markets. At Terrydale Capital, we have a wide reaching lender connections offering USDA Loans for commercial real estate investors. With our comprehensive market knowledge, our team is always ready to guide you to success. Contact us today!

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