When investors loan bond funds to a municipality, they are expecting a rate of return on their investment. Unlike a mortgage where one bank loans the entire amount to a borrower, in a municipal bond financing there are typically multiple investors who loan funds based on their desired maturity length and other factors.

Municipalities such as school and community college districts can finance their project needs using municipal bonds. Bonds are a debt similar in concept to a homeowner obtaining a mortgage from a bank to purchase a home.