When to say no - or maybe yes - if Uncle Hank hits you up for a holiday loan

Digesting your turkey may be tougher today if that uncle you rarely hear from pulls you aside to ask for a loan. Be prepared to protect your money (and the family peace).

Formalizing a loan to a family member or friend may seem cold and ungenerous, but there are financial and emotional benefits. Being able to spell out those reasons may ease tensions and give you a framework to discuss the deal.

"When you're trying to collect on a debt, friends and family can quickly become estranged," said Ira Bryck, director of the University of Massachusetts Family Business Center.

So remember five points:

Assess the borrower's finances. Ask why your relative came to you and what other options were exhausted. Ask about her employment.

Lend only what you can afford to lose. And consider the impact the loan will have on your lifestyle and long-term savings: Is this money you could sock away in an IRA account?

"Look at it as if it were an arms-length transaction. How would you do this loan if this person wasn't your friend?" said Rob Setlzer, a CPA.

Ask how payments will be made, over what time frame, and with what interest. Forcing the borrower to think through such details may serve as a reality check - he may even realize he won't be able to pay back the money, after all.

If you're not comfortable requesting the information, say you need the specifics for tax reasons or to ensure you can meet other financial obligations.

If the loan is to start a business, discuss what rights (if any) you'll have as a stakeholder. This might include copies of quarterly balance sheets or a role on a board of advisers.