Hi,
To quote Patrick Swayze in "Roadhouse", "be nice", and if you don't want to, then just calmly say "no". That's all you need to do. It's not a reflection on the personality of the asking party. No apologies are neccesary,(unless you're Canadian, in which case it's a cultural thing).
I've got a '65 Martin 000-18, and I won't lend it. Period. I've also got a plywood Yamaha, and anyone would be welcome to use it. No worries.
Jams can be kind of crazy, so listen to your intuition. Instruments can get dropped, scratched and messed with accidentally, and with no malice aforethought.
I've borrowed guitars myself on occasion, for hootenannnies, jams, and recording, and if it's okay, then that's fine, and if not, that's the way it is. Cheers
Owl.