The Housing Growth Partnership will act as a dedicated initiative that will invest alongside smaller builders in new development.
It will help provide money to support their businesses, helping get workers onto sites and increasing housing supply.
A network of builders will also be established including experienced developers, who will act as mentors and advisers to those looking to expand and grow their businesses.
In the last 25 years, the number of firms building between one and 100 units a year has fallen from over 12,000 to fewer than 3,000.
The Housing Growth Partnership will support residential development projects with a gross development value of between £750,000 and £12 million and will offer investments in the range of £500,000 to £5 million for each project.
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Housing Minister Brandon Lewis said that the Partnership is expected to deliver an extra 2,000 homes.
The government has matched a £50 million investment from Lloyds Banking Group to create the £100 million Partnership, which expects to make approximately 50 investments.
Minister Lewis said: "The 2008 economic crash devastated our army of small builders, with delivery falling from 44,000 homes to just 18,000 – 7 years on, companies are getting back on their feet but we’re determined to give them all the help they need.
"Access to finance is one of the biggest challenges they face – so that’s why today I’m launching this £100 million commitment which will help our smaller builders fund new projects, expand their businesses, create more jobs and build more homes."
Andrew Bester, Group Director and Chief Executive, Commercial Banking, Lloyds Banking Group said: "The challenge of housing supply and affordability is one of the biggest issues facing Britain today, so we at Lloyds Banking Group welcome the government’s announcement of support for the Housing Growth Partnership, which will double the capability to support SME house builders.
"It will provide SME house builders with much needed equity to support residential development projects, to stimulate growth in their businesses and facilitate access to conventional property development finance."
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