The one-year pilot scheme will work in a similar way to the student loans system, which helps thousands of people go to university each year.
Up to 7,000 young people aged 18 to 24 will be able to borrow between £5,000 and £10,000 to help start their own firm, the Department of Business (BIS) said.
Under-25s will need a "viable" business plan before they get their hands on any money and will be expected to pitch ideas to third-party providers, such as The Princes' Trust, who will run the scheme.
BIS has begun looking for private and third-sector organisations to run the scheme on a not-for-profit basis, although young people may be charged interest rates on the cash they borrow.
The department wants the scheme up and running by next March, with a view to introducing it permanently if successful.