By Rabbi Yitzchok Basser
Q:
I would like to purchase a business that engages in Factoring. This involves purchasing debt at a discount and collecting it at full value. For example, Company A owes Company B $100. The factoring company would buy the note for $75 from company B, and collect $100 from company A when it becomes due.
Should Company A default, there are two types of arrangement possible. In a non recourse arrangement, the factoring Company bears the loss. In a recourse arrangement, the factoring Company would be reimbursed by the Seller (Company B) for the full face value of the debt ($100)
Is there a Ribbis problem with either of these arrangements?
A:
A non recourse structure is permitted. In a recourse structure, If Company B is a not incorporated, there would definitely be an issue of Ribbis, and it would require a valid Heter Iska. Even if they are incorporated, according to many Poskim a Heter Iska should be drawn.
The Shulchan Aruch (CM 173:4) discusses the sale of a Shtar Chov, a loan note drafted by a borrower to the lender. The lender is willing to sell this note at a reduced price for cash up front. When the loan matures the buyer will collect from the borrower the full value of the loan. The Shulchan Aruch permits such a transaction only in the event that the buyer accepts responsibility for the non payment of the debtor (a non recourse sale). Should the seller accept such responsibility, there would be a problem of Ribbis (this concept is known as Karov L’Schar V’Rochok Mihefsed). The source of this ruling is the Ramban, who says that this practice is Rabbinicaly prohibited.
The Nesivos Shalom (ibid) brings a number of Achronim that the Ramban is discussing a case that the buyer can be compensated only for the outlay that he provided to the seller. Should he be guaranteed the full value that the creditor would owe, the prohibition would be prohibited by the Torah. Some Achronim say that if the money can be immediately collected, there would be no prohibition.
In our case, since the money owed by the creditor is generally not immediately collectable (typically the money is not due for 30 days), it would only be permissible to structure the arrangement as a non recourse. A recourse arrangement would involve a Torah prohibition (even to collect from Company A) according to a number of Poskim.
However, there is another issue to consider. Rav Moshe Feinstein (Igros Moshe YD 2:63) permits lending money with interest to a Jewish owned corporation. The reason is because there is no personal liability on the part of the owner, there is merely a lien against the corporation’s assets, the Torah does not consider this to be a loan.
In our case if the company selling the debt were to be a corporation or an LLC, there would be no issue of Ribbis according to Rav Moshe Feinstein.
However a number of Poskim disagree with this ruling (Minchas Yitzchok1:3 and 4:16, Har Tzvi YD 126, Bris Yehuda 7 n:66. See also Minchas Shlomo 28). It would therefore be preferable to write a Heter Iska Klali, which would have to be referenced before each deal is made (with any Jewish owned companies).
