Many personal finance and “get out of debt” blogs often advise their readers to avoid the use of credit cards at all costs. For some people, it’s all too tempting to buy more than you need and waste money on frivolous items when all you have to do is hand over a piece of plastic. By paying for everything in cash, you force yourself to correlate the cost of the items that you buy with actual dollar values which in theory helps curb your spending.

Photo By Andres Rueda

While these mind games work for the average individual, when it comes to running a small business, credit cards are an absolute must. My personal opinion is that if you lack the self control to watch your spending, then you have no business becoming an entrepreneur either. When running a small business, it’s important to watch what you spend closely and carefully to control your burn rate. But even more important, it’s crucial that you be able to completely separate and track all business transactions apart from your personal purchases. Keeping your business purchases on a separate credit card serves three main purposes.

• Come tax time, it’s extremely easy to extract out your business expenses on your Schedule C or other business tax forms.
• If you ever get audited, you have a much better case if you can show that you keep your business and personal expenses completely separate.
• It makes bookkeeping easier because your credit card company automatically tallies up and in most cases categorizes your expenses for you.

Using credit cards for as many purchases as possible allows you to streamline your bookkeeping. Plus, there are many rewards and money saving benefits to using credit cards for your business as well. Having done a fair amount of research on credit cards over the past decade, here’s a list of the best credit cards for small businesses that I could find in terms of cash rewards and savings with no annual fees.

Note: If you spend an abnormally high amount on business travel, then there are probably other cards that can save you more money on plane fare. For the purposes of this analysis, I focused on cards that provide you with cash back or savings off of your purchases rather than perks. Cash is king for any small business and you want to conserve as much of it as possible.

CostCo Business American Express Card

By far the best credit card that I’ve found is the Costco American Express card. This card is the perfect card for small business owners because it provides rewards for some of the most common expenses that entrepreneurs incur. Here’s a list of benefits for this card.

• 4% cash back off your first $6500 worth of gas at any Costco or domestic gas station
• 3% cash back off of eating out and dining at restaurants
• 2% cash back off all travel purchases which include plane tickets, lodging, cruises, tour operators etc…
• 1% cash back off of everything else
• 90-day coverage from date of purchase against theft and accidental damage up to $1,000 per occurrence
• Extends the terms of the original manufacturer’s warranty up to one additional year on eligible purchases with warranties of five years or less that are eligible in the U.S.

The main disadvantage is that you have to be a Costco member in order to apply for this card. But if you have a family like I do, chances are that you have a Costco membership already so it’s a no brainer. The other thing you need in order to apply for this card is proof that you have a business. This proof can come in the form of an LLC filing, proof of incorporation or a DBA. In addition, to establish your credit limit, you will need to submit your prior years business tax return. The Costco business American Express card is the card that my wife and I use for almost everything and there is no limit to the amount of rewards you can accumulate.

Chase Ink Plus Unlimited Rewards Card

Not every establishment takes American Express, so it’s important to also carry a Visa or Mastercard as well. My wife and I have found that the Chase Ink Plus card offers excellent cash back rewards. The main benefits are as follows

• 3% cashback on gas stations, restaurants, office supply stores, hardware and home improvement stores
• 1% cashback on everything else
• Unlimited cash back rewards
• Unlimited cards for employees and the ability to set individual spending limits per card

The benefits aren’t quite as good as the Costco Amex card but since it’s a Visa/Mastercard, you’re likely to be using it quite a bit at smaller establishments. Once again, you’ll need to provide proof of your business along with your application. In addition, you’ll have to send your business income tax return to establish your credit limit.

Honorable Mentions

The following credit cards received an honorable mention:

• Citibank Dividend Rewards Card – Offers 5% off of gas, groceries, drug stores, and utilities for 6 months. Then it becomes 2%. There’s a 1% cash back for everything else
• Chase Freedom Card – 3% cash back on gas, home improvement and department stores
• American Express Blue Card – 1% cash back off supermarkets, drug stores and gas for the first $6500. After $6500, it becomes 5% cash back. You get 1.25% off other purchases

What Credit Cards Do You Use?

If any of you use credit cards that provide greater rewards than the cards mentioned above, let me know. I excluded Discover cards from consideration because so few places accept it.

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