Lord Hanningfield, the council's leader, wants to create a£50m "community bank", pooling funds from the council and local health and police authorities.
He told The Financial Times: "Essex has been much more affected than other parts of the UK by the financial downturn, with severe repercussions for small businesses. We can't take any risks with people's money, but lots of viable businesses are being starved of funds."
The news follows LGC's exclusive report in November that Birmingham City Council was also considering setting up its own bank.
Lord Hanningfield has quoted the Bank of Essex in Virginia, USA, as an example of a successful small-scale community lender.
The council's plan follows the Essex Post Office Initiative , where local post Office branches are subsidised to keep them running.
Essex Federation of Small Businesses chairman, Iain Wicks, said: “The Essex Management Board has agreed a number of initiatives which demonstrate that the public sector in Essex is entrepreneurial and innovative in the way it is aiming to support the Essex economy during the current downturn.
“The decision this week to create a ‘Bank of Essex’ to make European Investment Bank funding available to small businesses in the county will mean such firms facing financial difficulties could find a lifeline.
“The changes to the Essex CC procurement and payment process which have been announced are the culmination of almost a year’s worth of meetings between Essex FSB and senior council officers and we are confident these changes will make more contracts available to local small businesses."