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.