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Question: I have an ongoing arrangement by which a friend loans me thousands of dollars to use for my business at a fixed rate of interest. I think (but am not sure) that we agreed to have a heter iska (I can’t find one), but it is possible it was only agreed orally. Some money has been paid, and some is still owed. What should I do at this point?

Answer: If there was a valid heter iska, you have no problems even if you cannot find it. That is because a heter iska sets the nature of the transaction as having an element of investment (subject to profit or loss, at least theoretically) from the outset, and therefore there is no problematic loan. [The reason that a heter iska can be used to pay at a fixed rate, irrespective of actual profits is connected to the halacha that the investor can demand verification (witnesses, oath) that the investment did not earn more than stated. The heter iska states that a fixed rate can be paid as "assumed profit" (d’mei hitpashrut) in lieu of verification.]
According to most poskim, an oral heter iska agreement is valid b’dieved (see Brit Yehuda 40:9; Torat Ribbit 16:2). Why then do we bother with a written agreement? While we certainly do not intend to cast aspersions on a halachic system that the rabbinic community has accepted broadly, most will admit that it borders on halachic fiction. The sides basically agree to a loan to be returned with interest even if the borrower did not profit. It is therefore worthwhile to be able to lean on the halachic precedent that the written word can raise doubtful agreements to the minimum level required (see Ketubot 56b; Tzemech Tzedek, Yoreh Deah 88). Additionally, many people do not understand the conditions of the iska. Most poskim do not require a high-level understanding of the mechanism, but it is unclear what the minimum level is. When things are in writing, there is more chance one understands (see Brit Yehuda 354). Also, there is a broad rule that when something is in writing, we do not enable one to claim he did not understand; he is to realize he is accountable for whatever is written (see Netivot Shalom p. 726). This element is missing when the "agreement" is oral. Also, there are different types of heter iska which can be used, and not everyone knows how to specify which version they are agreeing to. In summary of this part of the question, it is important to have a written heter iska, and you should prepare one now. However, if there was an agreement to follow the conditions of a classic heter iska, under the circumstances you can assume the agreement had the proper halachic effect.
What if there was no agreement? Interest that was paid already would be the violation of a Torah prohibition, which the creditor is required to return to the borrower (Shulchan Aruch, YD 161:5). However, the borrower is allowed to waive the right to have the money returned (ibid. 160:5), as you are apparently interested in doing. (There is more to be said on this matter, but it is beyond our scope.) Regarding the future, it is possible to create an iska at this point. This can be accomplished by transferring to you potentially profit-producing assets by means of a kinyan sudar (Dagul Me’revava to Shach, YD 177:41) or through a written heter iska (slightly modified language is preferable). This new iska arrangement cannot change the nature of the loan retroactively, and thus it is forbidden to make new interest payments to correspond to the time that passed (Torat Ribbit 16:29). Some allow compensating for the lost profit by making the d’mei hitpashrut higher than what was planned (ibid.; Netivot Shalom, p. 721). However, others counter logically that it is clear that the added payment is ribbit for the past and not incidental (ibid.). The less exact and less clear the compensation is the more reasonable leniency is on this point.
[Since each case has its own details and dynamics, we suggest you speak to us about arriving at the best arrangement for your case.]