Interest for Business
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Question
Is it permissible to borrow money from a private individual to start a business (studio) with interest? 7000 shekels, with a repayment of 7500 or 8000? Does a heter iska apply here? If so, how is the heter iska done? Thank you, Yisrael Stern
Answer
Shalom and blessings
Indeed, there is a complete prohibition on charging interest, and it is mandatory to arrange a heter iska. A heter iska is based on the principle that part of the debt is a loan and part of it is an investment in the business, with the lender receiving a percentage of the profits or bearing part of the business losses. However, an additional condition is included that a fixed amount of 500 or 1000 shekels or a fixed percentage can be set, which will be used in case the borrower does not wish to provide evidence that there were no misappropriations of funds and the investment was made lawfully. Additionally, conditions are included that the borrower clearly does not intend to fulfill, such as that all business expenses must be witnessed by the city rabbi along with the city's public representative.
It is recommended to arrange a specific heter iska for a loan with full interest with one of the rabbis who are knowledgeable in the laws of interest. If you are in Bnei Brak, you can contact the Beit Horaa at 28 Daniel Street, Bnei Brak.
However, you can also use existing and ready-made heter iska forms.
Source
Shulchan Aruch (Yoreh De'ah, Siman 177, סעיף 6).