How cash back business credit cards work
Cash back credit cards work as their name suggests. Whenever you make an eligible purchase with a cash back card, it earns a certain percentage back as cash rewards. Some cash back cards earn the same percentage on any type of purchase, whereas others earn extra in specific bonus categories.
Let's say you make a $100 purchase on a card that earns 2% back. That purchase would be worth $2 in cash rewards. It's similar to getting an automatic discount for paying with your cash rewards credit card.
The cash back you earn is added to your rewards balance. You can redeem it online in your credit card account. Redemption options depend on the card, but most cash back cards offer one or more of the following:
- Apply cash back as a statement credit on your credit card bill. For example, you could use $50 cash back to reduce your bill by $50. Keep in mind this normally doesn't count as making a payment, so you still need to do that to avoid a missed payment fee.
- Transfer cash back to your bank account.
- Request a check in the mail for your cash back.
- Use your cash back to buy gift cards.
Do business credit cards affect my credit score?
Even when you get a business credit card, it can affect your personal credit score as a consumer.
Credit card companies always check your credit score when you apply for a small business card. That's still one of the most important factors they use to judge your creditworthiness. They also require a personal guarantee from applicants, meaning you need to take personal responsibility for any debt you incur.
To pull your credit report, the card issuer needs to run a hard credit check. This has a small impact (usually under five points) on your credit score. Your credit could also be affected if the card issuer reports business card activity to the consumer credit bureaus. All card issuers would do this with a personal credit card, but only certain ones do it with business cards.
How to choose the best cash back business credit card
Choosing the right cash back business card revolves around one question: Which credit card will save you the most money? Here are the main factors I'd suggest looking at to answer that question:
Cash back rate: The amount of cash back a card earns, also called the rewards rate. Some business credit cards earn an unlimited 1.5% or 2% back on purchases. Others earn higher amounts, like 3% to 5% in bonus categories, and 1% on purchases that don't fall into any of those bonus categories.
Many business owners find they earn more with a card that offers the same rate everywhere. But if most of your spending is in a few categories, like office supplies or gas, then a card with bonus categories could be better for you.
The best option is to have your business expenses on hand and do some quick math on how much you'd earn with different cards. It takes a little longer, but you'll find out which card is going to earn the most money back for you.
COMPARE RATES: Best Cash Back Credit Cards
Annual fee: A fee charged once per year for a credit card. Not all credit cards charge one, and plenty of the best credit cards have no annual fees. Cards with an annual fee do tend to have more benefits, and most importantly, higher cash back rates.
This is another situation where a little math can help you decide if an annual fee is worth it. Let's say you're comparing two cards:
- Ink Business Unlimited® Credit Card: Earns an unlimited 1.5% cash back for no annual fee.
- Capital One Spark Cash Plus: Earns an unlimited 2% cash back for a $150 annual fee. (See rates and fees.)
For every $1,000 you spend, the Capital One Spark Cash Plus earns you $5 more in cash back than the Ink Business Unlimited® Credit Card ($20 at a 2% rate vs. $15 at a 1.5% rate). After $30,000 in business spending, you'd earn $150 more cash back, enough to cancel out the fee difference.
So, if you expect to spend more than $30,000 per year with your card, the Capital One Spark Cash Plus would be the best business credit card for you. Less than that, and you'd be better off with that Chase Ink Business card.
Welcome bonus: A cash rewards bonus offer for new cardholders, also called a sign-up bonus. These offers usually include a bonus amount and a spending requirement, like $750 in bonus cash for spending $7,500 on purchases in the first three months from account opening.
Bonuses can be worth a lot of money. If it's a close race between a few cash back business cards, then you could use the bonus offers as your deciding factor.
0% intro APR: An intro 0% APR offer that lasts for an introductory period, such as 12 or 15 months from account opening. Several business credit cards have these, typically on purchases made using the card. There are also 0% intro APR offers on balance transfers from other credit cards, which are designed to help pay off credit card debt.
If you need to make big business purchases you won't be able to pay back right away, a 0% intro APR on purchases is the best choice. You won't be charged interest until the intro period ends. And if you have credit card debt, a balance transfer offer can lower your interest cost and save you money.
Are you open to all types of business cards? See our picks for the Best Business Credit Cards to compare cash back and travel rewards business cards.
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