Yes, a PPP loan could be spent on a defined set of expenses other than payroll — chiefly rent, utilities, mortgage interest, covered supplier costs, worker-protection purchases, business software, and property-damage repairs not covered by insurance. These non-payroll costs were fully eligible uses of the funds and could count toward forgiveness, with one firm limit: no more than 40% of the forgiven amount could come from non-payroll expenses, because at least 60% had to go to payroll. The Paycheck Protection Program stopped accepting applications on May 31, 2021, so this page is a reference for anyone reconciling an old loan or seeking forgiveness records — and, at the end, a look at how business owners fund the same expenses today.
Key takeaways
- Non-payroll costs were eligible only if they were business obligations in place before February 15, 2020 (for most categories) and paid or incurred during the covered period.
- The 60/40 rule capped non-payroll spending: at most 40% of any forgiven amount could be non-payroll, so payroll had to make up the remaining 60% or more.
- Mortgage and rent payments counted only toward interest and lease costs — mortgage principal and prepayments were never eligible or forgivable.
- The covered period ran 8 to 24 weeks from the date funds were disbursed, and borrowers generally chose the length that maximized forgiveness.
- Four newer categories — covered operations, property damage, supplier costs, and worker protection — were added by the Economic Aid Act in late 2020 and applied to loans not yet forgiven.
- Borrowers had to retain supporting documentation for six years after the loan was forgiven or repaid in full, and could be audited within that window.
- PPP closed to new applications on May 31, 2021; revenue-based financing and MCA marketplaces are the common working-capital route today.
The full list of non-payroll expenses PPP allowed
Congress designed PPP so the majority of each loan flowed to wages, but it recognized that a business cannot keep the lights on with payroll alone. Over the life of the program, the eligible non-payroll categories expanded from four to eight. The original four came from the CARES Act in spring 2020; the second four were added by the Economic Aid Act in December 2020 and applied to any loan that had not yet been forgiven.
Here is how the categories broke down, with what each one actually covered:
| Non-payroll category | What it covered | Added by |
|---|---|---|
| Business rent or lease | Payments under a lease in force before Feb 15, 2020, for real or personal property | CARES Act |
| Mortgage interest | Interest (not principal) on a mortgage obligation incurred before Feb 15, 2020 | CARES Act |
| Utilities | Electricity, gas, water, transportation, telephone, and internet service begun before Feb 15, 2020 | CARES Act |
| Interest on other debt | Interest on other business debt incurred before Feb 15, 2020 (not forgivable, but a permitted use) | CARES Act |
| Covered operations expenditures | Business software, cloud computing, and services for payroll, HR, billing, tracking, and records | Economic Aid Act |
| Covered property damage | Repair costs from 2020 public disturbances not reimbursed by insurance | Economic Aid Act |
| Covered supplier costs | Payments to a supplier for goods essential to operations under a contract in effect before the covered period | Economic Aid Act |
| Covered worker protection | PPE, physical-distancing changes, ventilation, and other COVID-safety expenditures | Economic Aid Act |
A useful rule of thumb: if the cost was an ongoing operating obligation your business already carried before the pandemic, it was likely eligible. Brand-new discretionary spending generally was not.
The 60/40 rule, in plain terms
The single most misunderstood part of non-payroll spending was the 60/40 rule. It did not cap the total dollars you could put toward rent or utilities — it capped the share of your forgiven amount that could come from non-payroll costs. Put simply: for every dollar forgiven, at least 60 cents had to be payroll and at most 40 cents could be non-payroll.
If you spent too little on payroll, you did not lose forgiveness entirely — your forgiveness was proportionally reduced. Here is a rounded illustration of how the math worked out.
| Scenario (for example) | Loan amount | Spent on payroll | Spent on non-payroll | Forgivable (rounded) |
|---|---|---|---|---|
| Meets 60/40 comfortably | $100,000 | $75,000 | $25,000 | $100,000 |
| Exactly at the line | $100,000 | $60,000 | $40,000 | $100,000 |
| Payroll falls short | $100,000 | $50,000 | $40,000 | ~$83,000 |
In the third row, the $50,000 of payroll can only "unlock" non-payroll up to the 40% ceiling of the forgiven total, so forgiveness is capped at roughly $50,000 divided by 0.60 — about $83,000 — rather than the full $90,000 spent. These figures are rounded examples for illustration only; your actual result depended on your documented totals.
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Rules and limits inside each non-payroll category
Each category carried its own fine print, and the details are where borrowers most often tripped. The most important boundaries:
- Mortgage interest, not principal. You could count the interest portion of a business mortgage payment, but never principal and never prepayments. The same logic barred paying down other loans early with PPP funds.
- Obligations had to predate February 15, 2020. Rent, mortgages, utilities, and other debt were eligible only if the underlying agreement existed before that date. A lease signed in mid-2020 did not qualify.
- Supplier costs needed an existing contract. Payments to a supplier counted only for goods essential to operations, under a contract, order, or purchase order in effect before the covered period began (or during it, for perishable goods).
- Worker protection had to be pandemic-related. PPE, plexiglass barriers, outdoor-seating buildouts, and ventilation upgrades qualified; a general remodel did not.
- Software had to serve the business. Cloud and software costs were eligible when they supported operations such as payroll, billing, HR, or recordkeeping.
Anything outside these lines — owner draws beyond the compensation cap, new equipment purchases, expansion projects, or refinancing principal — fell outside eligible use and put forgiveness (and, in some cases, the borrower) at risk.
The covered period: timing that changed everything
Non-payroll costs only counted if they were paid or incurred during your covered period. Early in the program that window was a rigid 8 weeks; later guidance let borrowers choose any length from 8 to 24 weeks starting on the disbursement date. Most owners chose the longer window because it gave more room to accumulate qualifying payroll and reach full forgiveness.
Two timing nuances mattered for non-payroll spending specifically. First, a cost could count if it was either paid during the covered period or incurred during it and paid by the next regular billing date — so a utility bill spanning the end of your period could still qualify. Second, the alternative payroll covered period that some borrowers used for wages did not extend to rent or utilities; those followed the standard covered period.
Documentation you needed — the part most guides skip
Eligibility meant little without proof, and this is where many borrowers were caught short. For every non-payroll dollar claimed, lenders and the SBA expected source documents. Keeping them organized was not optional: borrowers were required to retain records for six years after the date the loan was forgiven or repaid in full.
| Non-payroll expense | Documentation typically required |
|---|---|
| Rent or lease | Lease agreement plus cancelled checks, receipts, or account statements showing payment |
| Mortgage interest | Lender amortization schedule and receipts, or statements from Feb 2020 through the covered period |
| Utilities | Invoices from February 2020 and those paid during the covered period, with proof of payment |
| Covered operations / software | Invoices, orders, or receipts and proof of payment |
| Supplier costs | Copy of the contract or purchase order plus invoices and payment records |
| Worker protection | Receipts or invoices showing the purchase and its safety purpose |
Loans of $150,000 or less used the streamlined Form 3508S, which did not require submitting these documents with the application — but the borrower still had to keep them on hand in case of an SBA review. That distinction caught many owners off guard.
Common mistakes and audit triggers
Because non-payroll spending is where the rules bend most, it is also where reviews concentrated. Loans of $2 million or more were subject to automatic review, but smaller loans could be examined too. The recurring errors were avoidable:
- Counting mortgage or loan principal. The most frequent single mistake, and an easy one to spot on a statement.
- Claiming obligations that began after February 15, 2020. New leases and new utility accounts did not qualify.
- Exceeding the 40% ceiling and expecting full forgiveness anyway.
- Thin or missing records, especially for supplier and worker-protection costs, which required contracts and receipts many owners never filed.
- Double-dipping, such as using PPP for the same wages claimed under the Employee Retention Credit or an EIDL advance.
If a review found ineligible spending, the practical outcome was usually a reduced forgiveness amount — the disallowed portion converted to a loan the borrower repaid at 1% over the remaining term, rather than a penalty, provided the application was made in good faith.
PPP has closed — how businesses fund these costs now
The Paycheck Protection Program stopped accepting new applications on May 31, 2021, and no replacement forgivable program has taken its place. Owners who still need to cover rent, utilities, supplier bills, equipment, or payroll gaps now turn to conventional and alternative financing. For businesses that want speed and are more concerned with cash flow than with a pristine credit file, revenue-based financing through an MCA marketplace has become one of the most accessible options.
This type of funding works differently from a PPP loan. There is no forgiveness and no eligible-use list — the money is unrestricted working capital. Approval leans on your bank-deposit history and monthly revenue far more than on your credit score, which is why business owners with imperfect credit still qualify. A marketplace matches your file to several funders at once rather than sending you to a single lender.
| Typical marketplace parameters (for example) | Detail |
|---|---|
| Minimum funding amount | Around $10,000 |
| Credit score | FICO 500 and up considered |
| Primary approval factors | Monthly revenue and bank-deposit consistency |
| Funding speed | Often 24 to 48 hours after approval |
| Use of funds | Unrestricted working capital |
Nothing here is guaranteed — offers, amounts, and terms depend on your actual bank statements and revenue. But for the same real-world expenses PPP once covered, a revenue-based advance is a realistic way to get funds moving quickly, especially when a bank timeline will not work.
Frequently asked questions
Could PPP loans be used for expenses other than payroll?
Yes. PPP funds could cover a defined set of non-payroll costs — rent, utilities, mortgage interest, interest on other business debt, business software and cloud services, covered supplier costs, worker-protection purchases, and property-damage repairs not covered by insurance. All were permitted uses, and most could count toward forgiveness within the 40% non-payroll limit.
What was the 60/40 rule?
The 60/40 rule required that at least 60% of any forgiven amount go to payroll costs, leaving no more than 40% for non-payroll expenses. Spending less than 60% on payroll did not eliminate forgiveness — it reduced it proportionally, so your forgivable total was effectively capped at your payroll spending divided by 0.60.
Was mortgage principal an eligible PPP expense?
No. Only the interest portion of a business mortgage incurred before February 15, 2020 was eligible. Principal payments and prepayments were never eligible uses and never forgivable. The same restriction applied to paying down other business debt — interest could be a permitted use, but principal could not.
What non-payroll categories were added later in the program?
The Economic Aid Act of December 2020 added four categories to any loan not yet forgiven: covered operations expenditures (software and cloud services), covered property damage from 2020 public disturbances, covered supplier costs, and covered worker-protection expenditures such as PPE and physical-distancing changes.
What documentation did I need for non-payroll expenses?
For each non-payroll cost you typically needed the underlying agreement — a lease, mortgage schedule, contract, or purchase order — plus invoices and proof of payment such as cancelled checks or account statements. Even borrowers using the simplified Form 3508S for loans of $150,000 or less had to keep these records, generally for six years after forgiveness or repayment.
Can I still apply for a PPP loan?
No. The Paycheck Protection Program stopped accepting new applications on May 31, 2021, and it has not been renewed. Existing borrowers may still pursue forgiveness through their lender, but no new PPP funding is available. Businesses needing capital today use conventional loans, lines of credit, or revenue-based financing.
What financing replaces PPP for covering business expenses today?
There is no direct forgivable replacement. Many owners now use revenue-based financing through an MCA marketplace, where approval depends mostly on monthly revenue and bank-deposit history rather than credit score. Amounts commonly start around $10,000, FICO 500 and up is considered, and funding often arrives within 24 to 48 hours as unrestricted working capital.
What happened if I spent PPP funds on an ineligible expense?
Ineligible spending generally reduced your forgiveness rather than triggering a penalty, as long as the application was made in good faith. The disallowed portion converted to a loan repaid at 1% interest over the remaining term. Misrepresentation, however, could carry more serious consequences, which is why accurate records mattered.
