Small-business credit cards offer two main types of rewards: cash back and points. Both programs can generate a nice return for your business spending, because as long as you pay off your balance each month and don't owe interest, you're essentially getting these rewards for free.
The right fit for your business depends on how you plan on using your credit card. Here's a look at the key differences between cash back and points, along with their strengths and weaknesses, to help you figure out which rewards best suit your needs.
With a cash-back program, when your business spends on the credit card, you may get a small amount of money back. You can then transfer the money to your bank account or use it to pay off your card balance.
With a points card, purchases can build up points that you can redeem for travel benefits like flights or hotel stays. Depending on the credit card, you may also be able to redeem points for merchandise, gift cards, air miles in a frequent-flyer program or cash (though likely with a lesser return than if you used a standalone cash-back card).
So how do the two programs stack up in different categories?
Ease of Claiming Rewards
When it comes to simplicity, cash-back business credit cards are the clear winner.
Managing points takes a little more effort since there are more ways to use them. You need to work through the credit-card company's website to figure out how you want to spend your points. There could also be restrictions, depending on the card, like only being able to use the points with a specific airline or hotel.
Finally, not all the options for spending points are equal value. For example, a card's points may be worth 3 cents each when you spend on airfare, 2 cents for hotels and only 1 cent when you exchange them for gift cards.
Value of Rewards
While managing points takes a little more work, they can be a lot more beneficial. Especially if you are looking for higher-end travel perks like flying first class or staying at an upscale hotel. You could use your points to cover an international business trip or fund your next company retreat for a fraction of the cash price.
Cash-back cards don't offer the same flexibility since you're just receiving money straight up. No more, no less.
Of course, you only get the higher value from points if your business actually needs the travel perks. Earning a bunch of free hotel nights doesn't matter if you never travel. But if the rewards fit your needs, then points can be the better deal.
With a points card, you are more likely to receive extra benefits—like automatic status with an airline or hotel, a pass for airport lounges and free checked bags with an airline. If the card charges an annual fee, you could also receive a reward every year you renew, such as a free hotel night or bonus air miles.
The right fit for your business depends on how you plan on using your credit card.
Cash-back cards do not tend to offer these extra benefits as they are not connected to any hotel or airline. You just receive the money from your spending.
No Annual Fee
You also need to decide whether you want a card with an annual fee. Small-business credit cards that charge an annual fee typically offer a higher reward rate, so with enough spending you can come out ahead. But if you are wary of carrying long-term debt, be sure to shop around for credit cards that do not have an annual fee.
Picking a Card
If you're looking for something simple that won't take much research, cash-back business credit cards are probably the way to go. You can just keep managing your business spending as usual and won't have to do any extra planning. Every month, you'll automatically build cash that you can reinvest into your business.
On the other hand, if you don't mind putting in some research, you can potentially get more out of a points card. They are especially worth considering if you like high-end travel or if you are a loyal customer of a specific airline or hotel chain.
Finally, remember you can take out more than one card. For my business, I use a points card to cover travel, since it earns a higher rewards rate and because the card often comes with free airport lounge passes. For all my other business spending, I use a cash-back card to get an automatic discount.
Credit-card companies are eager to take you on as a customer and willing to provide you with rewards. Make sure to take advantage and get a credit card that works as hard as you do. Understanding your company's unique spending needs, you can find the right fit: cash back, points or both.
Photo: Getty Images