What Can PPP Loans Be Used For? Payroll, Rent, and Utilities

PPP loans could be used for payroll, rent, mortgage interest, utilities, certain business software and cloud services, supplier costs under pre-existing contracts, uninsured property damage from 2020 public disturbances, and worker protection spending tied to COVID-19 health guidelines.¹ At least 60% of the loan had to go toward payroll for the borrower to qualify for full forgiveness; the remaining 40% could cover the other categories.² The program stopped taking applications on May 31, 2021, but the eligibility rules still matter for anyone finishing a forgiveness application, answering an SBA review, or squaring old records.

Payroll Costs

Payroll was the point of the program. Eligible payroll spending covers cash compensation — salaries, wages, commissions, and tips — capped at $100,000 per employee on an annualized basis. If someone earned $140,000, only $100,000 of that salary could be included in the loan calculation and forgiveness amount.³

Beyond wages, the payroll bucket also includes:

Employer contributions to group health insurance and retirement plans
Vacation, sick leave, parental leave, and family or medical leave
State and local taxes assessed on employee compensation

The employer’s share of federal Social Security and Medicare taxes is specifically excluded. So is any cash compensation above the $100,000 annualized cap for a single employee.

Self-employed individuals and sole proprietors calculate their eligible amount from net profit reported on Schedule C, subject to the same $100,000 cap. That gave business owners without traditional payroll a comparable path.

Only expenses incurred or paid inside the covered period counted. For most loans that period ran 24 weeks (168 days) from the disbursement date; borrowers funded before June 5, 2020 could opt for an 8-week window instead, and Second Draw loans followed the same 8-to-24-week structure.⁴⁵

Rent, Mortgage Interest, and Utilities

Up to 40% of the loan could go to non-payroll overhead. Three categories qualified from the start, and each carried the same baseline rule: the underlying obligation had to be in place before February 15, 2020.²

Mortgage interest. Only the interest portion of a business mortgage payment qualifies. Principal is excluded. The debt must have been incurred in the ordinary course of business before the February 15 cutoff.

Rent and lease payments. Payments under a lease for real property (office space, retail locations, warehouses) or personal property (equipment, vehicles) qualify, as long as the lease was in force before February 15, 2020.

Utilities. Electricity, gas, water, telephone, and internet access all count. The statute also picks up certain transportation costs — government-assessed fees for business use of transportation systems, tolls, and similar charges — but not fuel, vehicle maintenance, or mileage reimbursements.

Software, Suppliers, Property Damage, and Worker Protection

The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, passed in December 2020, expanded the list of forgivable expenses beyond the original four categories.⁶

Covered operations expenditures. Payments for business software and cloud computing services that support payroll processing, human resources, sales, billing, accounting, inventory tracking, or product delivery.²

Covered supplier costs. Payments to suppliers for goods essential to the business’s current operations. The key restriction is timing: the contract or purchase order had to be in place before the borrower received its PPP loan proceeds. A business could not take the loan and then sign new supplier agreements to burn through the funds.

Property damage costs. Expenses tied to vandalism or looting during public disturbances in 2020, but only amounts not covered by insurance or other compensation.¹ Documentation needs to show the damage, the repair payment, and the absence of insurance reimbursement.

Worker protection expenditures. Spending to comply with COVID-19 health and safety guidelines: personal protective equipment, sneeze guards, drive-through window installations, ventilation or filtration upgrades.¹

What PPP Funds Cannot Be Used For

Several categories of spending are off-limits, and this is where forgiveness applications most often run into trouble:

Debt principal. Only mortgage interest qualifies. Paying down the principal balance of any business debt is prohibited.
Federal taxes. Neither federal income taxes nor the employer’s share of federal payroll taxes are eligible.
Lobbying. Spending to influence legislation or government action.
Compensation above the cap. Cash compensation above $100,000 annualized for any individual employee.
Payments to independent contractors. Payments to 1099 contractors do not count toward eligible payroll. Contractors were expected to apply for their own PPP loans based on their own Schedule C net profit.

The independent contractor rule catches people off guard more than anything else on that list. A business that leaned on contractors and folded those payments into a forgiveness application has a real problem, because the SBA flags them during review.

Why the Categories Still Matter

Borrowers can apply for forgiveness up to five years from the date the SBA issued the loan number, and the SBA’s direct forgiveness portal is still open inside that window.¹ Full forgiveness still requires that at least 60% of the loan went to payroll during the covered period, with the balance spent on the eligible categories above.²

Getting the eligible-expense question wrong is expensive. Making false statements on an SBA loan application is a federal crime carrying fines up to $1,000,000 and up to 30 years in prison,⁷⁸⁹¹⁰

Keep the records that prove where your funds went: payroll records, lease agreements, mortgage statements, utility bills, supplier invoices, bank statements, and the forgiveness application itself. The SBA extended lender record retention to ten years from the final disposition of each loan,¹¹ which puts individual loans in reach of review well into the late 2020s and early 2030s. If the SBA asks and you cannot produce documentation, the default outcome is that the spending is treated as unsubstantiated and not forgiven.

1
U.S. Small Business Administration. PPP Loan Forgiveness
2
United States Government Publishing Office. 15 USC 636m – Loan Forgiveness
3
Federal Register. Business Loan Program Temporary Changes – Paycheck Protection Program
4
Department of the Treasury. Frequently Asked Questions on PPP Loan Forgiveness
5
Department of the Treasury. Paycheck Protection Program Second Draw Loans
6
Department of the Treasury. Business Loan Program Temporary Changes – Paycheck Protection Program as Amended by Economic Aid Act
7
Office of the Law Revision Counsel. 18 USC 1014 – Loan and Credit Applications Generally
8
Office of the Law Revision Counsel. 18 USC 1344 – Bank Fraud
9
Office of the Law Revision Counsel. 31 USC 3729 – False Claims
10
U.S. Department of Justice. Violations of the False Claims Act as the Result of Fraudulent Payment Protection Program Loans Settled in United States District Court
11
Federal Register. Business Loan Program Temporary Changes – Paycheck Protection Program – Extension of Lender Records Retention Requirements