Transforming a Loan into an Investment
Question
Is it possible to convert an existing loan into an interest-bearing investment? I loaned money to a person and after some time, we want to convert the loan into a “heiter iska” (that would make it permissible to charge interest). He sent me the following text in an email: 'I borrowed a thousand shekels from so-and-so based on a business transaction permit found with Rabbi Amram Fried at an annual rate of 12%.' Is this okay? Is the wording okay?
Answer
Greetings,
It is not possible to convert a loan into a business transaction.
If there is a loan that involves interest, it must be terminated immediately, and the money must be returned to the lender. Afterwards, a new acquisition can be made with the money with the intention of performing a business transaction.
Also, if the money was initially given as an interest-free loan, it cannot be stipulated to become a business transaction. Instead, a new loan must be made.