The primary difference between a bank loan at prime or prime + 1 and a corporate bond is the length of the maturity of the instrument. A bank loan is either a revolver, which is subject to call at any time subject to rules in the loan agreement or for a fixed period of time, generally short-term.
Bonds are considered long-term debt, that is the issuer expects to keep this money for whatever purpose for the length of the bond. The issuer does not have to pay back the principal, in general, until the bond matures say in 20 or 30 years. Corporations will issue bonds for shorter terms but the norm is the 20 or 30 year bond.
Because you are lending money to the corporation which does not have to pay you back for a long time (it pays the interest quarterly or semi-annually) you receive a higher interest rate because you are in effect tying up your money for a long time. If you wish to sell the bond prior to the maturity date, you do this on the open market, you don’t get a refund from the issuer.
The higher interest rate reflects both the risk based on the financial condition of the borrower and the length of the loan.
SRM