If reviewers get requests for reviewing grant applications from people they know personally, what should they do if they don't know how to comment, as the proposals are good, but don't want to quit either?
Once you've been in a field for long enough, essentially every proposal and paper is from someone who you know personally to some degree. That's unavoidable and knowing someone does not, in itself, constitute a conflict of interest.
The question that the funding agency will want to know about is whether you feel conflicted in writing an honest and fair review -- or, maybe more importantly, whether an external observer might wonder whether you might be conflicted in writing an honest and fair review. In other words, do you (or might someone think that you do) stand to gain something by writing a good or bad review?
If you conclude that you might be biased, or that someone else might think that you're biased, then you should decline to review. Otherwise, there is no reason to decline a review just because you know the author.
If you believe that you can treat this review as you would any other, honestly and fairly, then there is no obstacle. Otherwise don't do it. Don't review for your spouse or for your worst enemy.
However, the person or organization that requested the review should first be notified that you know the person. If you have any personal relationship with them, beyond superficial knowledge, then reveal that. You don't want charges of bias to later be made, so defer the decision to the person who asked.