Rewards are a discount on spending you were already going to do. Interest is a charge for borrowing. When the two collide, interest usually wins. This guide shows the arithmetic, and also explains how consumer-protection rules treat business-purpose cards differently from personal ones, because that affects what you should read in your own cardholder agreement.
Use the same spending profile as the calculator: $40,800 a year on the card. A hypothetical card paying a flat 2% returns $816 a year if every statement is paid in full.
Now suppose the business also carries a $5,000 balance from month to month all year, at an illustrative 24% annual rate. A quick simple-interest estimate is 5,000 × 0.24 = $1,200 of interest over the year. The $816 of rewards is smaller than the $1,200 of interest, so the net result is a loss of $384 before any fee. Rewards were real, but they were outweighed.
The 24% figure is only an assumption chosen to make the example easy to follow; it is not any issuer's rate. Check the rate printed in your own cardholder agreement. Real interest is computed on a daily balance and compounds, so a simple multiplication is an approximation.
| Item (annual) | Pay in full | Carry $5,000 all year |
|---|---|---|
| Rewards at 2% on $40,800 | $816 | $816 |
| Interest at an assumed 24% | $0 | −$1,200 |
| Net | $816 | −$384 |
At an assumed 24% annual rate, the monthly rate is about 2%. A $5,000 balance left unpaid for one month therefore costs roughly $100. A 2% rewards rate on $5,000 of spending is also $100. So one month of unpaid interest cancels the rewards on $5,000 of purchases. If you notice yourself carrying a balance for several months, no rewards structure will rescue the numbers.
On a constant $5,000 balance, rewards of $816 equal interest at 816 / 5,000 = 16.32%. So with those inputs, any rate above about 16.3% makes carrying the balance more expensive than the rewards are worth. A smaller balance moves the break-even rate higher, but the direction does not change: rewards belong in a plan to pay the statement in full.
Sometimes cash flow is uneven, especially for seasonal businesses. In that case the order of importance changes. The rate on the card and any introductory period matter more than the rewards. Consider a plan for the largest purchases, and set a date by which the balance will be cleared. Do not judge a card on its rewards while you are paying interest on it. The calculator assumes full payment, which is stated in the methodology.
Business cards are not covered the same way as personal cards. The Consumer Financial Protection Bureau's report on the Credit CARD Act describes that law as applying to consumer credit cards, not small-business cards. Under the CFPB's Regulation Z, credit that is for a business purpose is generally exempt, with two exceptions that still apply: the rules on how credit cards may be issued, and the limits on a cardholder's liability for unauthorized use (12 CFR 1026.12(a) and (b)). For unauthorized use, the regulation caps a cardholder's liability at a modest amount, but a separate provision lets a card issuer and an organization agree on different terms when ten or more cards are issued to its employees.
What this means in practice: do not assume the notice periods, fee limits or other protections you may know from personal cards apply to your business card. They may be set by the cardholder agreement instead. Read the agreement, especially the sections on interest rate changes, fees and your responsibility for employee cards. Sources are linked below so you can read the rules themselves.
As the U.S. Small Business Administration explains, applying for a business card with your company's tax ID does not always remove you from the picture: issuers often check the owner's personal credit and may require a personal guarantee. If the business cannot pay, you could be responsible. See business vs. personal credit for the practical details, and ask the issuer directly before you apply.
Consumer Financial Protection Bureau, Regulation Z, 12 CFR 1026.3 (exempt transactions) and 1026.12 (special credit card provisions), at consumerfinance.gov/rules-policy/regulations/1026. CFPB, "A review of the impact of the CARD Act on the consumer credit card market" (2013), at files.consumerfinance.gov. U.S. Small Business Administration, "Establish business credit," at sba.gov/business-guide/plan-your-business/establish-business-credit. Rules change, so confirm current text at those sources.