Online lenders operating in California such as LendingClub Corp. and OnDeck Capital Inc. would be required to ditch the annual percentage rate (APR) in favor of a new metric when disclosing small-business loan costs if a bill before California’s Assembly becomes law.

The bill (S.B. 1235), which has already passed the state Senate, would require nonbank small-business lenders to estimate the “annualized cost of capital” (ACC) to disclose financing costs. The untested metric selected by the bill’s sponsor, Sen. Steve...