An initial £1.4m will be made available with the full £5m awaiting final approval by the West Yorkshire Combined Authority Board at their meeting on 4 February.
The Business Flood Recovery Fund is expected to be in place by next week with grants of between £5,000 and £100,000 available.
The fund could support SMEs with critical capital investment requirements such as new equipment or hire costs for machinery and premises required to recommence or maintain their operations.
It could also go towards implementing internal flood resilience measures such as building a mezzanine floor to move business critical equipment to a higher point.
Each application will be reviewed on a case by case basis and will need to be accompanied by a detailed flood recovery plan.
Cllr David Green, chair of the West Yorkshire Combined Authority Investment Committee and leader of Bradford Council, praised the fund.
He said: “The funding approved today is about supporting local businesses with the long-term recovery by enabling them to resume trading, safeguarding jobs for local people and re-establishing supply lines to meet their customers’ requirements.
“With an initial assessment on the impact of the flooding on the regional economy suggesting the long term damage could be as much as £365m, it is clear we need government to work with us to achieve long term solutions that will prevent these destructive deluges and stop the idea of a Northern Powerhouse being overwhelmed.”
The Business Flood Recovery Fund will operate under the same guidelines as the existing LEP grant funding scheme currently supporting SMEs to grow in Leeds City Region.
The new fund will be managed by the Leeds City Region Enterprise Partnership (LEP).