Guide to Lending Money

Blending strawberry smoothies for a living can be a pricey affair.

Brothers Kyle and Aaron Campos spent nearly $200,000 to open their Main Squeeze Juice and Smoothies cafe in Buckeye, Ariz., in 2005. Now they're experiencing year-over-year growth of 22%, which should increase even further with the franchises they have in the works.

The former computer programmers mainly used their own savings to fund the original venture; they also received a $35,000 bank loan and $20,000 from family and friends.

The friends-and-family route is one of the more popular funding channels for start-ups. In fact, Americans make 6.1 million friends-and-family loans per year for more than $89 billion total, according to CircleLending.

Childhood neighbor James Rohl says he didn't hesitate to offer $5,000 to the Campos brothers, his old after-school basketball buddies. "I essentially wanted to invest in my friend. I wanted to say, 'I believe in you and I know you're going to do big things,'" Rohl says. Even Rohl's mom, Debbie, threw in $1,000.

They're all sweet gestures, but lending money to a friend or relative for their business -- whether start-up or established -- can easily turn sour. A return on your friendly investment is no guarantee. Not to mention that tangling money with friends and family can potentially create a web of resentment and anger when things go awry.

So before handing over any money, here's a guideline for potential investors.

Confidence Check

Whether to invest in a friend's business largely depends on how well you trust the relationship.

To view Farnoosh Torabi's video take of today's segment, click here.