When to Say No to a Loved One's Start-Up

As the economy slows and credit gets tighter, more entrepreneurs looking to fund start-ups are turning to individuals they know personally rather than big financial institutions.

A significant 35% of small-business borrowers sought financing from friends and family, according to a recent survey by Discover Financial Services.

But if you're the rich sister, or the uncle with a tidy nest egg, how do you know when to get out your checkbook -- and when to say a polite but firm no?

If you see the following red flags, run the other way -- even from family:

Skimpy Plans

Turning a great idea into profits isn't easy.

An investment pitch should include a thorough business plan that addresses the project's financials, marketing research, a description of operation procedures and a payback plan for investors.

"Pretend you're a bank, and avoid anyone who hasn't done their homework," advises Doug Ware, a volunteer with the Orlando chapter of SCORE, a nonprofit organization that educates entrepreneurs.

A Lousy Track Record

You want to bet on a winner, not a newbie who's looking to test his or her abilities on your dime.

With most traditional investments, past performance is no guarantee of future results. But with entrepreneurs, past ventures can hint at a new effort's chance for success.

Of course all entrepreneurs miss the mark at some point, so a failure or two shouldn't necessarily prompt you to walk away.