The key difference between loans and bonds is that bonds are tradable instruments and therefore have at least a theoretical liquidity, which loans do not, though loans could be traded on an ad-hoc basis between banks. This difference is not so great in case the bonds are raised through private placement basis, in case these investors who do not intend to trade them in the market. Another point of difference is that the project company will have less knowledge of the bond holders than with the case of lenders.

The key factors which are likely to affect the project company's decision to whether raise financing through loans or bonds are size, cost, and term. Bonds can be used normally for large-sized projects as investors want the bond issue to be sufficiently large for the issue to have market liquidity. For very large projects, the liquidity of loans will be limited and therefore bonds may be more suitable. Bonds tend to have a lower cost than equivalent bank loans because of wider investor base. Finally, the terms of bond used to be longer than that of the bank loans and hence bonds are more competitive.

Bonds are generally suitable for standard projects, especially for projects which are refinanced after it has been built and has operated successfully for a period. On the other hand, the bank loans are more suitable for construction and early operation phases of the project, where there are likely to be changes in the public authority's requirements as loans give more flexibility.

Maintaining commercial confidentiality is another issue where loans are more preferable than the bonds. In loans, the project documents and other related documents will be shared to a limited number of banks whereas; the terms of the project contracts may have to be published in a public rating report or prospectus.

Negotiations with the banks for changing the terms and conditions of the lending in case the projects get into trouble remain private amongst the stakeholders. On the other hand, it is difficult to have a direct discussion with the bondholders, who are more passive in nature, in case the project gets into trouble.