Applying for a small business loan often leaves borrowers uncertain about loan costs until the final offer. The Expected Rate Disclosure addresses this by providing an early estimate of the likely interest rate, enabling small business owners to compare financing options before committing.
This disclosure requirement arises from the Consumer Financial Protection Bureau (CFPB) rule under Section 1071 of the Dodd-Frank Act, designed to improve transparency and fairness in small business lending. It mandates lenders to share upfront estimated rates when a final interest rate is not yet determined.
Lenders calculate the expected rate estimate using borrower-specific data, including credit history, revenue, loan amount, and typical rates for comparable borrowers. This estimate is not a guarantee but an informed projection that helps applicants understand potential costs.
For example, a bakery owner seeking a $50,000 loan may receive immediate final rates from one lender but an expected rate range from another pending full underwriting. This allows her to weigh offers side by side.
Expected Rate Disclosures typically include:
- The estimated interest rate or rate range.
- The basis for the estimation (e.g., credit score, revenue).
- A notice that the rate is an estimate, subject to change.
- Details on next steps in the application process.
Common misconceptions include confusing the expected rate with a guaranteed rate lock or the loan APR. The Expected Rate Disclosure refers specifically to the interest rate estimate, not the APR, which also includes fees.
Receiving this disclosure usually means conditional approval but not final loan acceptance until underwriting completes. Borrowers have the right to decline offers if the final terms differ substantially.
For more on related topics, see our glossary entries on Small Business Loan and Business Loan Interest Rate. Learn more about CFPB rules at Consumer Financial Protection Bureau (CFPB).
Sources:
- CFPB Small Business Lending Rule: https://www.consumerfinance.gov/rules-policy/final-rules/small-business-lending-under-the-equal-credit-opportunity-act-regulation-b/
- Ballard Spahr LLP on CFPB Section 1071 Disclosures: https://www.ballardspahr.com/news-and-events/alerts/2023/04/18/the-cfpbs-section-1071-final-rule-is-here-disclosures
- NerdWallet on APR: https://www.nerdwallet.com/article/loans/personal-loans/apr-what-it-is-and-how-it-works
(Information accurate as of 2025.)
