A key benefit of most small business credit cards is that they offer points and/or cash back rewards. While cash back rewards are typically the best, certain companies can benefit more from points. To maximize your rewards, this article discusses points vs cash back, including how to compare them, who they’re best for, and how to use them.
If you are looking for a small business credit card that offers you a high degree of flexibility with great rates and rewards, take a look at Chase. You can choose between travel or cash-back rewards, add employee cards for no additional cost, and set spending limits for each card. Apply online in minutes.
How to Maximize Small Business Credit Card Rewards
When maximizing small business credit card rewards, the most important thing to consider is a card’s redemption rate. The redemption rate is the dollar value of a card’s rewards and can be used to compare points and cash back apples-to-apples. This will help you choose the best mix of cash back and rewards points for your small business.
- Typical Redemption rate: Can range from $0.006 – $0.05 per dollar spent or per point earned.
A good rule of thumb is to maximize the redemption rate of multiple spending categories. While this is possible with a single card, it’s often better to use 2 cards if you spend more than $25k per year in a specific spending category. It’s also better to use 2 cards if you make significant purchases in multiple spending categories.
To help, we outlined different situations in which 2 types of rewards cards best maximize a business’s overall redemption rate.
Business with Office Expenses & Air Travel
The most common types of business expenses are typically office expenses and air travel expenses, including such things as car rentals and hotel rooms. For companies that have high monthly expenditures in these categories, a combination of a cash back rewards card and an airline card is probably the best.
For example, with the Chase Ink Business Plus card, you could make all of your office-related expenses (including phones and Internet expenses) for the first $25k you spend per year and earn a 5% redemption rate. However, the Chase card only has a 1% redemption rate on office expenses over $25k and on all general expenses (excluding gas and restaurant expenses which are 2% for the first $25k spent).
The Capital One Spark Miles card, on the other hand, offers 2x points for each dollar spent, a 2% redemption rate. This is higher than the general 1% rate with Chase. So, if your employees travel significantly, you could put all general purchases on the Capital One card at a 2% rate (redeemable for airline tickets) and all your office expenses on the Chase card at a 5% cash back rate.
Then, once you hit Chase’s $25k annual spending cap for office-related expenses, you can begin paying your office expenses on your Capital One card and earn a 2% redemption rate. This rate is higher than the 1% you’d earn with Chase for office-related expenses that exceed the $25k limit.
Business with Office Expenses & Ground Travel
Another common combination of businesses expenses are office expenses and ground travel expenses. This is most likely the case for local businesses that have delivery drivers or employees that work out in the field locally. For these companies, a combination of a cash back rewards card and a fleet or gas card is probably the best.
For example, the Shell Small Business Gas card was rated as the best fuel card by Fit Small Business. The card offers a 3% discount on all purchases made at the pump without any tiers. The Chase Ink Business Plus, while it’s our top-rated cash back card, only offers 2% cashback on gas and restaurant purchases up to $25k per year and 1% after.
This means that the gas redemption value of the Shell card is better than the Chase card. However, the Chase card also offers 5% cash back on office-related expenses including phone and Internet. This, of course, is a higher redemption value than the 3% that Shell offers.
However, the Shell card only offers a discount at the pump and not on other purchases. So, even though the card’s 3% discount might have a higher redemption value than Chase’s 1% general expense rate, you can’t make general purchases on the Shell card. For more information, check out our best small business fuel cards.
Business with Brick-and-Mortar Inventory
Of course, there are also many brick-and-mortar businesses that deal with a lot of inventory. These businesses include such things as restaurants or retail establishments. For these types of companies, travel rewards aren’t as important. Instead, the most important thing is cash back rewards to help with liquidity.
For this reason, the best combination of 2 cards are the ones that provide you with the most cash back or something similar. This means that you’ll either need 2 cash back cards or a cash back card and a points card that can be redeemed for gift cards. A secured credit card or one without cash back rewards won’t be effective.
A good example of this is with the Chase Ink Business Plus card and the Capital One Spark Cash Select card that offers 1.5% cash back on every dollar spent, regardless of category. So, when maximizing your rewards, it would benefit you to make all office-, gas-, and restaurant-related purchases (up to $25k each) on the Chase Card.
All inventory financing and general purchases should be made on the Capital One card. Once you reach the office or gas and restaurant spending caps, switch over to make all expenses on the Capital One Spark Cash Select card. This gives you an extra 0.5% in redemption value when compared to the Chase Ink Business Plus card.
How to Compare Points vs Cash Back Rewards
If you have only one business card it’s important to understand if points are cash back is better. You’ll have to first compare points and cash back with their redemption values. Then, you’ll have to check the small for any rewards caps. Third, consider the potential rewards and how they can help your specific business needs.
Here are the three steps to compare points vs cash back rewards:
1. Calculate the Redemption Value
A small business credit card’s redemption value is a measure of its rewards in dollar terms. The rate is often represented as a percentage and measures the dollar return of a small business credit card’s rewards program for each dollar spent. Essentially, a card’s redemption value allows you to compare different rewards programs using a standard measurement.
The easiest way to describe a card’s redemption value is to use a cash back rewards card. If a small business credit card offers 2% cashback on all purchases, its redemption value is also 2%. This means that for each dollar spent on the card, the cardholder should expect to earn $0.02.
Redemption rates get a little more complicated when you apply it to cards with points. A good rule of thumb is that a point is worth a 1% rate or $0.01 per dollar spent. To find the exact redemption value, you’ll have to figure out how many points are needed to redeem a certain prize (like an airline ticket), and then divide the price of the prize by the number of points needed to get it.
For example, if you know that a flight to New York requires 40k points to book and that the average price of a plane ticket is ~$400, you’d be able to figure out the redemption value as follows:
- ($400 plane ticket) / (40,000 points) x (100) = 1%
This means that in this example, the value of a point is 1% or $0.01 for each dollar spent. However, if the same credit card is like the Capital One Spark Miles and offers 2x points for each dollar spent, you’d have to multiply your redemption rate by 2 to get a 2% rate, or $0.02 for each dollar spent.
This is an important point because some rewards cards like the Chase Ink Business Plus offer higher rewards for specific categories. For example, the Chase card offers 5% cash back on office-related purchases, 2% cash back on gas and restaurant purchases, and 1% cash back on all other expenses. This means that the card has three redemption values: 5%, 2% and, 1%.
After you derive a card’s redemption rate, it becomes easy to compare it to other cards to see which has the better value. The higher the redemption rate the more money you receive per dollar spent. Based on this criteria alone, always choose a card with a comparatively higher redemption rate.
2. Check for Rewards Caps & Point Thresholds
Of course, it’s never enough to simply compare the redemption rates of two cards to compare the value of their points vs cash back rewards. Instead, you’ll also have to check and see if there are any caps or point thresholds. These caps and thresholds will limit your rewards and therefore the value of a small business credit card.
Almost all cash back rewards cards have caps on the amount of cash back you can get. For example, even though the Chase Ink Business Plus offers 5% cash back on office-related expenses, it caps those expenses at $25k per year. This means that you can only earn statement credits equal to $1,250 in one calendar year in this expense category before the rate drops to the 1% general purchases rate.
So, if you expect to spend more than $25k per year on office-related expenses, you’ll eventually stop receiving the 5% cash back benefit. This limits the effectiveness of a cash back card and diminishes its redemption rate as soon as a cap is hit.
A similar issue occurs with rewards points. With many fuel and fleet cards like the 76 Universal Card offering a tiered point system, its rewards are only effective if you meet certain point thresholds. Failure to meet these thresholds limits the redemption rate on the card.
For example, the 76 Universal Card has no discount for gallons used below 1k per month, but its redemption rate quickly jumps to 2% for 5k gallons pumped per month and 4% for 10k+ monthly gallons pumped. You can read more about the 76 Universal Card in our buyer’s guide on the best small business fuel cards.
This drives home the point. If you were to compare the Chase Ink Business Plus card with the 76 Universal Card, you’d find that the Chase card offers 2% back on gas expenditures up to $25k, and 1% cash back after. The 76 Universal card, on the other hand, offers a tiered system with a 2% discount if you use 5k+ gallons of gas a month.
The result is that you’d most likely want to stick with the Chase Ink Business Plus card if you use less than 5k gallons per month. Once the 5k-gallon threshold is consistently met, however, you’ll end up saving more money with the 76 Universal Card. This is because the redemption rate of gas expenses on the Chase card drops to 1% after you spend $25k on gas.
3. Consider the Rewards Based on Your Needs
Finally, when comparing different small business credit card rewards, make sure that the rewards actually help your business needs. For example, if you have a national sales team that’s on constant travel, it doesn’t matter how much you can get back on office-related purchases with the Chase card. Instead, the important reward is discount on travel.
Conversely, earning 2x miles with the Capital One Spark Miles might be good compared to other airline cards. However, if you don’t travel and need discounts on office expenses instead, even a 1% general cash back card is better for your business. This is true even though the redemption rate of the Capital One card is 2% while the general cash back card’s rate is only 1%.
Depending on your business needs, either points or cash back rewards could be the most beneficial. However, I spoke with Adam Jusko of CreditCardCatalog.com who echoed Gerri of NAV’s sentiments about the rewards on a small business credit cards:
“Cash is good for any business and you can never go wrong with cash back. However, if you travel and are loyal to a travel brand, consider a co-branded airline or hotel travel card or fuel card. If you travel and typically pick the low-cost option, it might be best to use a general travel rewards card.”
— Gerri Detweiler, Head of Education for Nav
Small Business Credit Card Points
Some small business credit cards offer rewards in the form of points earned for each dollar spent. These rewards points can be redeemed for a range of different products and services. A common example of these rewards points are airline miles, where a specific number of miles can be redeemed for a free flight.
Points are typically earned for each dollar spent on a card, with additional points given to specific spending categories. For example, travel cards such as American Express Business Platinum will often give 5x miles for each dollar spent on plane tickets and hotel rooms purchased through Amex Travel.
Small business credit cards with points typically have an annual fee between $49 – $99+. However, small business credit card points programs vary by credit card. It’s common to see the following types of point-based reward programs with the best small business credit cards:
- Airline & frequent flier credit cards – Let businesses earn “miles” on credit card purchases that can be redeemed for airline tickets. Cards can be either general or airline-specific. Frequent flier cards will also often offer extra miles for specific purchases, such as airline tickets, and perks such as free access to airport lounges.
- Hotel & general travel credit cards – Offers points for all credit card purchases, redeemable for free nights in a hotel or hotel upgrades. These cards will also often offer general perks that can be redeemed for points, such as theme park admission, airline travel, and more. Rewards can be general-purpose or hotel-specific.
- Retail rewards credit cards – Cards that are co-branded with a major retailer like Costco or Wal-Mart. Cardholders can earn points on purchases made anywhere, which can be redeemed for products or services from that specific retailer. In-store purchases made with the card are typically awarded double or triple points.
- Gas & fleet cards – These cards offer points that are treated as a rebate on gas. Points are earned on purchases and are typically redeemed automatically for rebates at the pump. Some cards can only make fuel purchases while others can make general purchases, too.
Points are typically earned automatically via purchases made on the card. Often times specific spending categories will give you more points per dollar than general purchase. However, points typically aren’t redeemed automatically.
It’s usually the responsibility of the cardholder to manually redeem the points using a card carrier’s online portal. Depending on the type of points, it can take anywhere from 1 – 10+ days to redeem your points and receive your benefit. However, cards with points such as airline miles can typically do it in a matter of minutes.
It’s common practice that the cardholders’ own their points and can redeem them as they see fit. The fact that a business owner is the guarantor on the account doesn’t matter when it comes to point ownership. However, if you’re the primary cardholder on the account, it’s possible to issue additional cards and receive all of the points.
Who Reward Points are Best For
Small business credit card rewards points offer a wide range of redemption options that work for a range of businesses. These points typically offer the best discounts on items such as company gas and business travel when compared to a cash back card. This is why rewards points are best for companies that travel significantly.
This travel includes both ground travel as well as air travel. For example, a business with a fleet of vehicles would benefit from a fleet card while a company with a national sales team would benefit from a frequent flier airline card. Both of these cards offer points that are redeemable for gas rebates and airline tickets, respectively.
The benefit with these types of rewards points is that they offer extra points on travel-specific expenses. For example, some airline cards such as Capital One Spark Miles offer 2x miles on every dollar spent. It’s common for airline miles to be worth $0.01 – $0.05 per point, meaning that the more you spend on travel the more you benefit.
Small Business Credit Card Cash Back Rewards
Small business credit card cash back rewards are discounts or cash back earned on purchases made using the card. Cash back rewards are usually applied as a statement credit at the end of each billing cycle. Cash back rewards can also come in the form of points whose main redemption method is with cash back.
It’s typical to find small business credit cards with general cash back rewards between 1% – 2% or more cash back for specific spending categories. For example, Chase Ink Business Plus offers 5% cash back rewards for office-related purchases. Specifically, however, there are two types of cash back rewards business credit cards:
- Cash back credit cards – The most common type of cash back rewards. This card typically offers cashback on all purchases made on the card, with extra cash back in certain spending categories. Cash back is usually received as a statement credit at the end of the billing cycle
- General reward points credit cards – These are similar to cash back rewards except that instead of offering a percentage cash back, the cards offer points that are redeemable for cash. More points can usually be earned in certain spending categories. They might also offer gift cards, office supplies, and more as a redemption option.
Cash back credit cards typically have a fee between $49 – $99 while a general reward points credit card usually doesn’t have a fee. Cashback is earned automatically for purchases made on the card and is issued as a statement credit at the end of each month.
Since cash back business credit cards usually issue their rewards in the form of a statement credit, the business will almost always receive the benefit of the cash back rewards. This is because the company will usually pay the overall bill themselves.
However, there are some cases where employees are required to submit an expense report and pay off the credit card themselves. If this is the case, you’ll want them to either submit their entire credit statement or include the statement credit as part of the expense report. You can enforce this with an effective corporate credit card policy.
Chase Ink Business Plus is rated by Fit Small Business as the best small business cash back rewards card. The card offers 5% cash back on office expenses, 2% cash back on gas and restaurant purchases, and 1% back on all other purchases.
Who Cash Back Rewards are Best For
Cash back rewards are a great option for companies that spend a lot of money on overhead or operations. This means that companies that pay their working capital expenditures using a small business credit can benefit the most. Cash back rewards are received in the form of a statement credit, which acts as a discount on working capital expenditures.
For example, the Chase Ink Business Plus card is a cash back rewards card that offers 5% cashback for office-related purchases, 2% cash back on gas and restaurant purchases, and 1% on all other purchases. If your company has a large in-office staff, a cashback card like this makes a lot of sense.
The benefit is that while you can earn higher cash back in working capital-related categories, all spending earns cash back. This cashback is a more flexible benefit when compared to airline miles, which can only be redeemed for airline-related items such as tickets. If you don’t travel a lot, getting cash back in the form of a statement credit discount is a better option.
How to Account for Taxes on Cash Back Rewards and Points
It’s hard to say exactly how to account for your points vs cash back small business credit card rewards when it comes to taxes. Luckily, there is a general rule of thumb that might help, which is that you don’t need to report your rewards to the IRS if you received them by spending money. This is because rewards earned for expenses is considered a “rebate.”
What this means is that cash back rewards and points earned on dollars spent aren’t taxed. However, if your business credit card offers cash back in statement credits and rebates, it reduces the amount you can deduct. For example, if you purchase office equipment for $1k and you get $10 cash back, you can only deduct $990 for the office equipment.
What this also means is that you might be liable to pay taxes on large introductory offers and signup bonuses. For example, if you earn $150 in cash back after spending $1k in the first 90 days, the $150 reward isn’t directly tied to specific expenditures and you might have to report it to the IRS on your year-end tax returns.
For points-based rewards, this is only the case if your credit card company sends you a 1099 tax form. For example, if you earn 50k miles as a sign-up bonus, you won’t have to figure out the redemption rate and report the dollar value to the IRS. In some cases, however, you’ll be sent a 1099 form with the dollar value that you’ll have to report as “other income” on your tax returns.
Of course, it’s always best to speak with a tax professional prior to making any decisions.
Bottom Line on Business Credit Card Rewards
Overall, there are 2 different types of rewards on a small business credit card. The first is a cash back reward and the second is rewards points. Both of these types give a business owner a range of options when it trying to maximize their rewards. However, a good rule of thumb is that cash back is always beneficial. To see Fit Small Business’s full review of top small business credit cards, read our guide.
If you are in the market for a small business credit card, check out Chase. You can choose between great travel or cash-back rewards, get competitive rates, and also get employee cards at no additional cost. Apply online in minutes.