The major purchasers of municipal bonds are individuals in high tax brackets, insurance companies, and commercial banks. The two major types of municipal bonds are general obligation bonds and revenue bonds. General obligation bonds are supported by the taxing authority of the issuing district. Revenue bonds are funded through revenue from the specific project being funded, which may be an airport, bridge, tunnel, convention center, water treatment plant, etc. As is common among other major bond categories, the types of municipal bonds in circulation include bonds with put and call provisions, variable rate structures, and zero coupon bonds.
Many municipal bonds carry credit ratings issued by one of the major credit rating agencies.
The loans may be fixed or adjustable rate, with the adjustable rate loans indexed to the prime rate. The adjustable rate loans adjust either monthly or quarterly. A government designated servicing agent acts as a record keeper for the pools and passes trough to the bondholders all principal and interest payments. Because the bonds are backed by loans that make monthly principal and interest payments, SBA pools can be analyzed, and behave in a similar fashion to, mortgage backed securities. The timing of the return of the cash flows to the investor, or the prepayment speed, has a significant effect on the return.