Banks urged not to 'label' people with low credit scores

A low credit score should not stop someone from getting a loan to start a business, a community lending charity founder has said.

Karen Davies, who founded Purple Shoots to provide credit for people turned away by mainstream lenders, said banks were "missing out a big talent pool".

Tiffany Bramley, whose bank rejected her request for a loan to re-start her business after her daughter died, said banks "tend to just label people and that needs to change".

UK Finance, which represents the financial services sector, said the banking and finance industry was "on course to provide over £60bn" in finance for small businesses in the UK this year.

Ms Bramley was running her business in the south of England in 2014 when tragedy struck.

Complications with her pregnancy meant she had to have an emergency Caesarean at 32 weeks and her baby, Tianie, died.

"It was like walking through hell," said Ms Bramley, who then moved to Cardiff to be nearer to friends and family.

Dealing with the grief of losing Tianie, and organising the funeral, meant that Ms Bramley missed a few payments on her financial commitments which affected her credit rating.

But Ms Bramley was determined to re-start her business.

"It's like a firework that goes up and just scatters - that's how my life had just exploded," she said.

"I needed to restart the business to feel like I had some control over my life again."

Ms Bramley was rejected by her bank when she applied for a small loan, even though they were "sympathetic".

"They tend to just label people and that needs to change," she said.

The bank instead suggested she contact Purple Shoots.

"That's when I met Karen," she said. "She was the one who gave me that hope and believed in me."

Ms Bramley borrowed £3,000 to re-start Tiff's Cleaning Angels in Cardiff and has successfully paid off the loan.

Since it began 12 years ago, Purple Shoots has supported nearly 1,000 new businesses with loans of up to £5,000.

In the year 2023-24 the charity gave 69 loans creating 104 new jobs, often in deprived communities.

"We're looking at the person and what they're like," said Mrs Davies.

"And we're looking at the business plan and whether it's going to be viable."

She accepts the approach is high risk because her clients are "starting with absolutely nothing but our loan".

"So if something goes wrong it will impact their ability to repay," she added.

More than half of Purple Shoots' borrowers will be behind on their loan payments at some point, said Mrs Davies, "and we always accommodate that because we want them to succeed".

"But the actual failures are much lower" at around 20%, she added.

Mrs Davies said the effects could be "transformative".

"People who've been struggling on benefits can create an income", start paying tax and benefiting the economy, she added.

Sam Rex-Edwards, from Finance Innovation Lab, a charity which campaigns for reform of the financial system, said she wanted to see mainstream lenders make affordable lending more accessible to those with low credit scores.

She was calling for a "fair banking" law that would place obligations on banks and other lenders to offer more support to those who struggle to get credit at the moment.

"Too many people are having to pay a poverty premium through using high-cost credit like payday loans," she said.

"And too many small and medium-sized businesses can't flourish because they're also refused credit from High Street banks."

There was some government backed support for small businesses from the British Business Bank and the Welsh Development Bank which both offer micro-loans for business start-ups.

The British Business Bank said it had provided "5,165 loans worth over £53m to start ups in Wales since 2012".

A UK Finance spokesperson said: "Last year we saw an increase in the amount of lending to small and medium enterprises in Wales, as well as more loan applications being approved.

"Banks also support other organisations, like non-bank lenders and charities, which help businesses that find it challenging to access mainstream finance.

"We are also working with government, regulators and business groups to help even more businesses access the finance they need to grow."