Why Small Businesses Should Consider Rewards Credit Cards

November 21, 2022 Credit Cards
Why Small Businesses Should Consider Rewards Credit Cards

Why Small Businesses Should Consider Rewards Credit Cards

In addition to providing further access to short-term funding, a business rewards credit card can offer a wide range of benefits, including rewards, cashback options, and travel protections. These benefits can help offset business costs while providing more flexible payment and funding options. As such, rewards credit cards can be particularly beneficial for small businesses that often have a smaller pool of available capital to work with. Moreover, depending on how carefully you choose and manage your business rewards card, you can maximize these benefits.

Managing Expenses With a Rewards Credit Card

As mentioned, business owners can use rewards credit cards to gain additional benefits while managing their expenses. To get the most of these benefits and properly use your credit card to manage expenses, it is important that you understand best practices for managing business credit cards. These best practices include:

  • Carefully tracking spending;
  • Setting individual spending limits for employees;
  • Keeping business and personal expenses separate;
  • Paying off the balance in full each month;
  • Funding large purchases during the introductory period;
  • Using loyalty points to offset business expenses such as travel costs;
  • Remember to properly file related tax deductions, e.g. interest, annual fees.

Another way that you can strategically utilize your business rewards credit card is by using it to build credit.

Building Business Credit

On the simplest level, you build business credit similarly to the way that you build personal credit — by using your credit cards and paying off your bills on time. This should be approached carefully as you may cause damage to your credit if you bite off more than you can chew.

However, when used and paid off carefully, a business credit card can help you improve your business’s credit score, expand access to funding opportunities, and allow your business to acquire more desirable interest rates. On that note, it is important to keep in mind that it is often more difficult to secure a business loan than it is to secure a personal loan. As such, a good credit score can have a huge impact on the success of a small business.

Enjoying Perks and Discounts

Rewards credit cards are called such because they offer a wide range of possible “rewards” for their users. The specifics of these rewards can vary widely. However, the typical model rewards users with loyalty points when they make purchases, and these loyalty points can later be traded for various, predetermined perks. For example, a rewards credit card might offer one loyalty point for every dollar you spend, and allow you to trade these points for cashback, gift cards, travel costs, events, and specific merchandise.

These options can, in turn, offset business costs. For example, a business could use its loyalty points to reduce the cost of travel and office supplies. Meanwhile, it could offer a business additional opportunities, such as the ability to attend workshops and other events.

Streamlining Business Expenses

A major benefit of using a company credit card to cover expenses is the simplicity it offers from a budgeting and bookkeeping perspective. It is easier to keep track of the credit card statements for one credit card rather than having to manage receipts for many different payment methods. Furthermore, a smaller number of payment methods will allow you to minimize and correct mistakes such as exceeding your credit limit.

How to Pick the Right Business Credit Card

Just as it is important to carefully choose the company that you bank with, it is also important to carefully choose your assets. This can be particularly tricky in the case of credit cards, as there are so many options available. However, usually a good place to start is to ask yourself the following questions.

What type of business expenses do you typically put on your credit card?

Because different businesses have different typical expenses, you will have to consider the particular nature of your business’s expenditures when choosing the ideal credit card. For example, many rewards credit cards allow you to trade loyalty points for travel expenses. While this may be highly beneficial for business models that require a lot of travel, it will not be as helpful for businesses that require few long trips. As such, it is important to determine how relevant a card’s perks are for your specific company.

How much do you spend on your credit card each month?

Businesses that expect to spend large sums of money on the company credit card each month may benefit from choosing a card with a high credit limit and a high rewards rate. This is because it is imperative to avoid going over your credit limit, and higher expenditures can mean more savings and opportunities through rewards. Meanwhile, a company that spends relatively little on a monthly basis may benefit from a simpler card with lower fees.

What are your top priorities when it comes to a rewards credit card?

Carefully consider why you would like to get a rewards credit card for your business. Some common reasons include: flexible cash flow, credit building, travel perks, and discounts. When comparing credit cards, make sure that you are keeping your priorities in mind.

What is your business credit score?

Your credit score will determine not only what kind of credit card you can qualify for but also the rates for the card. Rewards credit cards with high credit limits and substantial rewards will often require a high credit score. Additionally, it is important to consider how the interest rate might affect your bottom line. In some cases, it may be best to work on repairing your business credit before applying for a credit card. This can be used through options such as debt settlement and the use of a prepaid card.

Do you have any existing business loans or lines of credit?

If your business has existing loans or lines of credit, you will want to choose a card that compliments your current financing methods. For example, if you have an existing business loan to build a new property, it may be helpful to choose a rewards card that can help you secure construction materials. It will also be important to reassess which funding source will be used for which expenses.

About The Author

Ashley Davison avatar

Ashley Davison

Director of Operations, Credit Saint LLC

Ashley is currently the Chief Operating Officer for Credit Saint, previously working as a Logistics Coordinator at Ernst & Young. She is currently working toward an Executive Leadership Certificate from Cornell University.

With a degree in education, she is eager to teach the world everything she knows and learn everything that she doesn’t already know! Ashley is a FICO® certified professional, a Board Certified Credit Consultant, Certified Credit Score Consultant with the Credit Consultants Association of America and holds a Fair Credit Reporting Act (FCRA) Compliance Certificate.