What Is a Cash-Back Credit Card?

Cash-back credit cards aren’t only good for consumers. They can be a great way for business owners to maximize their savings – if they’re used responsibly.

The last thing any business owner wants is to rack up credit card debt, but if you can pay off your balance each month, cash-back credit cards can benefit your business in several ways.

What is a cash-back credit card?

A cash-back credit card gives users cash rewards every time they make qualifying purchases. Those points, or cash rewards, can be redeemed for a statement credit, a gift card or a check. Some credit card issuers offer flat-rate cash-back credit cards with rewards that apply to all your purchases; others focus on specific spending categories.

For small business owners who make a lot of purchases each month, a cash-back credit card can yield serious cash rewards. “Cash-back cards are even more useful for a business than consumers,” Ted Rossman, industry analyst at CreditCards.com, told business.com. “Businesses tend to spend more. It puts a lot of cash back in the coffers.” [Looking for a business credit card? Check out our recommendations.]

How do cash-back credit cards for business work?

Competition in the credit card industry is fierce, with issuers vying over consumers and business customers. To entice potential customers to sign up for a card, card issuers offer generous perks, including sign-on bonuses and cash-back rewards.

The credit card issuer can give its customers cash back on purchases because of the interchange fee it charges merchants on purchases made with its cards. They also ink deals with retailers to reward credit card users with cash back on certain purchases.

Most cash-back reward cards give you 1% to 2% of purchases back in cash rewards, but some come in as high as 5%. For example, if you have a credit card that gives you 2% cash back on all your purchases, you would get back $20 for every $1,000 spent.

For consumer credit card users, it can take a while to rack up significant rewards, but if you’re running a business and charging thousands of dollars each month, the cash back can be substantial. Let’s say you spend $50,000 on your cash-back card with a 2% rate. That amounts to $1,000. It increases to $2,500 if you received 5% cash back on that rewards credit card.

Some cash-back credit cards even provide rewards on balance transfers, yielding cash rewards that can be redeemed for a gift card or statement credit. [Read related article: How to Get the Most Out of Your Business Credit Cards]

What are the types of cash-back credit cards?

Cash-back credit cards come in many varieties. Some are general cash-back rewards credit cards, while others focus on certain spending categories. Here’s a look at the three main types.

  • Flat-rate cash-back credit cards give users the same cash-back percentage for all everyday purchases. They’re attractive for business owners who want cash back but don’t want to think about when they need to buy something to get the best rewards rate. It’s the easiest of the cash-back credit card strategies, but it may give you the smallest amount of rewards.
  • Tiered cash-back credit cards reward users with different percentages of cash back based on the spending category. One credit card might give 5% cash back at the gas pump, 3% on dining, 2% on travel and 1% on all other purchases. A tiered cash-back card tends to appeal to business owners who have several spending categories and want a more comprehensive rewards program.
  • Rotating reward cash-back credit cards give users different percentages of cash back for purchases in different categories on a schedule. For instance, business owners may get 3% cash back on travel one quarter and 5% cash back on office supplies the next. To maximize the cash you get back with this type of credit card, you have to stay on top of the rotating categories so you can time your purchases to get the higher rate.

“There’s different cash-back amounts [for] different categories,” said Richard Kerr, loyalty and engagement editor at The Points Guy. “You have to get out there and research and see where you spend the majority every month.”

What are the pros and cons of cash-back credit cards?

A cash-back credit card makes a lot of sense on paper. Who doesn’t want discounts on their everyday purchases? But that’s not the only benefit of using a cash-back credit card.

Pros of cash-back credit cards

  • Extra cash flow: For business owners who spend a lot each month, a cash-back credit card can translate into extra cash flow. The key is paying off your balance each month, said Matthew Gillman, CEO of SMB Compass. “What people don’t realize is if you use it to pay vendors and suppliers, you’re getting a discount, and a byproduct is [that] your margins become higher.” However, if you carry a balance, it can quickly negate any benefit you may have yielded. 
  • Business credit: The stronger your credit score, the cheaper it is to borrow money for your business. Credit cards are a great way to build up your business credit score. If you use it responsibly by keeping your balances low and paying on time, it will boost your standing in the eyes of the credit rating bureaus. 
  • Sign-on bonuses: Many credit card issuers want your business and will use sign-on bonuses to lure you their way. These are bonus cash-back rewards on top of the ones you earn on purchases. Many of these rewards card companies also waive the annual fee.

Cons of cash-back credit cards

  • High APRs: You may have the best intentions to pay off your business credit card balance each month, but if you don’t, the high annual percentage rate of cash-back cards can hurt you. That’s the total interest, including any fees. Sure, there may be a 0% APR in the beginning, but that’s typically an introductory rate. If you can’t pay your balance each month, the interest may be more than the cash back you’re trying to accumulate. 
  • Cash-back caps: Some business credit cards put a cap on the amount of cash rewards you can accumulate in a month or year. If the limit is lower than your spending in a certain category, that cash-back credit card might not be the right one for your business. 
  • Hard-to-follow rules: Some business cash rewards credit cards have a lot of rules, making it complicated and time-consuming for you to get as much cash back as you can. For instance, which category is getting what percentage back can be confusing to track.

What credit score do you need for a cash-back card?

Your credit score plays a direct role in whether you are approved for a cash-back business credit card. Typically, the credit cards with the most generous cash-back rewards are reserved for business owners with credit scores in the mid-to-high 700 range. Credit card companies also tend to give these card customers the highest welcome bonuses.

Business owners with credit scores in the lower 700s are eligible for most of the cash-back cards, but some will be off limits to them. If your credit score is in the 600s, your options are more limited. You’re still likely to be approved for cash-back cards, but they’ll probably offer less generous rewards. [Looking for an alternative to a credit card? Check out our guide to choosing business loans.]

What should you consider when choosing a cash-back credit card?

When you’re shopping for a cash-back credit card, you should think about the type of consumer you are, Rossman advised. If you don’t want to bother checking each item to see if it’s an eligible purchase, a flat-rate rewards cards is a headache-free option. If you like more control, you’ll do better with a cash-back credit card that has tiered rewards or rotates categories quarterly.

Here are four tips to help you choose the best cash-back credit card for your business:

  1. Consider your spending. If a substantial portion of your monthly budget goes to office supplies, then a cash-back card that gets you the most for those purchases is where you should focus your search. If you spend most of your day on the road, a card that offers a higher reward percentage for travel or gasoline purchases should be on your priority list, said Rossman. [Read related article: How to Develop a Business Credit Card Expense Policy]
  1. Compare rewards rates. Since getting money back is the main goal of this type of rewards credit card, compare the rewards rate from one card to the next. Pay careful attention to any limits on the rewards rate and the categories that get you the most cash back.
  1. Check out the sign-on bonus. Credit card companies want your business and will offer a welcome bonus to get it. However, when comparing new-cardholder bonuses, don’t get blinded by a big offer – you may get a big welcome bonus but lower cash-back rates.
  1. Watch out for fees. Most cash-back cards don’t have annual fees, but some do, so it’s important to read the fine print. When shopping for any credit card, make sure there aren’t any fees eating away at your rewards. If a credit card company does charge an annual fee, evaluate whether you’ll still come out ahead based on the cash-back percentage you can earn.

“You really need to do your research and make sure you get the highest cash back,” said Kerr. “Don’t let the fees catch you by surprise. Be very intentional.” [Read related article: Looking for a Business Credit Card? Discover Exec Highlights What to Consider]

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