A Loan at Home

Investing in a child's business or being a mortgagee can be fraught. Some rules are in order

Lending money to family and friends is a timeworn tradition--one that probably has worn out more relationships than it has helped. Still, if you've been fortunate enough to sock away some cash, can you say no to a child wanting to launch a business or a close friend who has run into temporary problems?

You can. But if you decide otherwise, consider that most business start-ups fail and that temporary problems have a way of becoming fatal ones. In other words, a lot of these loans go bad. About 14% of personal loans end up in default, according to Circle Lending,...