Money fix: How to lend to family, friends

In this tough economy, it's only a matter of time before someone you love comes to you for cash. Do you say yes? No? Nothing ruins a relationship like money.

Lending money to family and friends is an emotional proposition, but "treat it like a business transaction no matter what," warns Mark Meinberg, managing partner with MayerMeinberg in Syosset.

"First determine if you're giving a drunk a drink," says Dave Ramsey, author of "The Total Money Makeover." Why are they in this situation? Is it poor decisions or an emergency? Don't be an enabler.

Think like a bank. "Do they have a history of repaying? Are they employed?" asks William Hammer, vice president for wealth management at Vanderbilt Partners in Melville.

Put conditions on the gift. Require them to take a financial class or read a book, for example. Put all terms of the loan in writing.

Can you afford to take the gamble? Don't risk more than you can afford to lose. Don't cosign a loan, dip into your retirement account or jeopardize your finances. Get buy-in from your significant other.Check on possible tax consequences.

The IRS frowns on loans that charge little or no interest and may require you to pay a gift tax, says Gail Cunningham, a spokeswoman for the National Foundation for Credit Counseling. Evaluate the effect the loan will have on other family members; you're setting a precedent.

Helping can make a big difference in someone's life, but you can lose money -- and a loved one.