Is there a problem accepting a business loan from a close Jewish relative with the understanding that the loan will be paid back with an extemely low interest rate, considering that Jewish law prohibits a Jew from charging another Jew interest.

Is there a problem accepting a business loan from a close Jewish relative with the understanding that the loan will be paid back with an extremely low interest rate, considering that Jewish law prohibits a Jew from charging another Jew interest?

In Exodus 22:24 it states, “If you lend money to My people, to the poor, do not act toward them as a creditor; exact no interest from them.”  And in Deuteronomy 23:20 it states, “You shall not deduct interest from loans to your countrymen, whether in money or food or anything else that can be deducted as interest.”  In addition in Leviticus 25:35-38 it states, “If your kinsman, being in straits, comes under your authority . . . do not exact from him advance or accrued interest . . .   Do not lend him your money at advance interest . . . I the Lord am your God”

Based on these verses the Torah is clear that any interest charged to a fellow Jew as part of a direct loan, no matter how low the rate, is expressly forbidden.  This is called by the rabbis ribbit kezuzah.  Therefore, the simple legal answer to your question is that there is indeed a problem with a Jew (even more so a close relative) loaning another Jew money with interest of any kind.

Broadening this issue though, from a legal point of view, I would point out a few other laws that allow for some more flexibility in the extension of loans with interest.  One, according to Jewish law one can accept a loan with interest from, and extend a loan with interest to, a non-Jew.  Two, some rabbinic authorities, as a general rule, permit loans with interest to be accepted when they are given by corporations (ex. banks), instead of individuals, even if Jews are employees or executives in such corporations.  Finally, there is also a legal mechanism called the heter iska that is employed throughout the State of Israel, where this issue could potentially pose a major obstacle to conducting regular financial and banking transactions.  A heter iska is essentially an approved way of restructuring a loan or debt so that it becomes an investment instead of a loan. This presumes that the investor assumes some element of risk should the business fail, which is one basic difference between an investment and a loan. An investor could potentially lose money, whereas a borrower always remains responsible to pay.  The words heter iska actually mean, performing an allowable business deal that is similar to a prohibited transaction.  Thus, by restructuring the transaction, investments that pay dividends replace loans that incur interest payments.   

From an ethical point of view it is clear from the context in both Exodus and Leviticus that the main idea of the prohibition against interest is not to take advantage of those within one’s community who are in need.  Presumably, if one is asking for a loan it is because one is in need of financial help.  A fellow citizen and Jew who has the ability should provide that loan without seeking profit for himself.  Parenthetically, this value represents the foundation for the impetus to create Hebrew Free Loan Societies, which in the modern era helped so many Jews establish themselves in this country. 

There is a problem taking interest from a Jew under any circumstances

but there is a way around it called a heter iska

This is a document that must be signed as parft of the loan

there are several models that work

one of the simplest is to agree to pay the lender an amount for record keeping which just happens to be the same as the interest would be if there were interest allowed

absent a document like this no interest can be charged

and even with this document we are charging an administrative fee

not interest

the forms are available online at the Rabbinical Council of America website (I believe) or from your LOR (local Orthodox Rabbi)

 In this question , we see the difference in the response of Reform Judaism to the other branches of Judaism. In Reform, Jewish law has a vote , but not a veto as one of our teachers said. We do look to Jewish law and tradition and examine whether it has stood the test of time, judging whether or not it is applicable to our time. A similar situation is in the Biblical injunction against women wearing men’s clothing. Today women wear garments worn usually by men and there is no sense that this is any way wrong. So, to the issue of accepting a loan from a relative at a low rate. The problem is whether it is in the interest of the borrower that he engage in such a transaction. From the question, it seems as if the lender is doing a favor by extending such a loan. One can extrapolate to the situation of Israel. It was in desparate need of funds and turned to the expedient of creating the Israel Bonds. This enabled huge sums  to be lent to Israel when it was needed, and which could not have been possible by direct contributions. 

     Jewish law tries to be practical and also protect the poor and the needy. How unlike our American laws that protect credit card companies and  other credit agencies such as PayDay that allows them to charge usorious rates of interest . The poorest of our community are the most injured!