The funding will be provided by Advantage West Midlands, the Government-funded Regional Development Agency, to help bridge the gap for businesses suffering short-term funding problems due to the current financial crisis.
The fund, to be run on a fully commercial basis, will provide individual loans of up to £250,000 in total. It will be available to established and viable small and medium-sized businesses.
Business secretary Lord Mandelson said: "Access to finance is crucial for businesses to survive. With this fund, local firms can access the money they need to weather the economic storm and come out stronger the other side.
"We will do all we can to support companies through difficult times here in the West Midlands, and across the country.