Snowbunny,
I don’t see that anyone answered you question, so here’s a simplified explanation of heter iska.
A transaction which would normally be structured as a loan, can be structured in a way to make it a type of transaction which doesn’t involve ribbis. A contract is signed between the two parties in which the “lender” is considered an investor, and is investing in a business handled by the “borrower”. The additional money he will receive is not interest, it is a return on his investment.
Although normally such a loophole would not be allowed, because it is too similar to actual ribbis, an exception was made because people were not lending money because there was no material gain, and businesses were unable to prosper.