The $30 billion fund would provide support to small and medium-sized banks with assets under $10 billion to encourage them to increase lending to small businesses.
Obama outlined the effort in his State of the Union address in January. Initially the administration planned to obtain the resources by tapping leftover funds in the financial bailout program. Officials said Friday that the new effort has no links to the unpopular Troubled Assets Relief Program.
In remarks to reporters at the White House, Obama says that the program had been expanded to include a new state small business credit that would support efforts by state governments to provide loans to small businesses.
"This state initiative, which was designed with the help of governors and members of both the House and the Senate, will help expand lending for small businesses and manufacturers at a time when budget shortfalls are leading states to cut back on vitally important lending programs," Obama said.
An administration official said many states have their own programs to support loans to small businesses but these programs have faced cutbacks because of severe budget shortfalls in many states because of the recession.
This official, who spoke on condition of anonymity because he was not authorized to speak publicly, said the administration expects that Rep. Nydia M. Velazquez, head of the House Small Business Committee, and Sen. Mary Landrieu, head of the Senate Small Business Committee, would add their own proposals to the legislation as it moves through Congress.
"Getting capital to small business is going to be critical to sustaining our recovery and continued job growth," Velazquez, D-N.Y., said in a statement. "The committee will work to ensure that whatever Congress moves forward accomplishes that goal."
The administration has faced growing pressure to increase government help for small businesses. Lawmakers in both parties have complained that while the government created a $700 billion bailout fund that provided help to big financial institutions and two auto companies, small businesses have struggled to get the financing they need to keep operating.
Many banks have tightened lending standards in the face of record home mortgage foreclosures and now serious problems in commercial real estate.
The administration's new initiative to support state lending seeks to merge ideas that were suggested from various sources, including recommendations made in a letter from 28 governors endorsing the use of loan guarantees for small businesses.
The administration proposal also would provide support for a program currently being used in more than 20 states that gives capital assistance to banks providing loans to small businesses, an idea being pushed by Sen. Mark Warner, D-Va.
In addition, the administration's effort incorporates elements of a small business lending program that has been successful in Michigan. The Michigan program provides support to businesses that have seen the value of the collateral they have put up to obtain bank loans shrink during the recession.
Michigan Gov. Jennifer Granholm and members of the Michigan congressional delegation including Reps. Sander Levin and Gary Peters worked with the administration on this approach as did Sen. Sherrod Brown, D-Ohio.