The Trinity Mirror-owned Echo will hand out grants between £10,000 and £100,000 in the north west while Northcliffe's Plymouth-based paper, the Western Morning News, will hand out a total of £1 million to businesses in the south west in "a kind of Dragons' Den competition", the News' editor-in-chief explained.
The newspapers are two out of 50 companies distributing £450 million in the first round of the Regional Growth Fund, which is designed to encourage enterprise, growth and jobs in the private sector and support areas and communities that are dependent on the public sector.
In an announcement, the Department for Business, Innovation and Skills said it expects more than 27,000 jobs to be directly created and safeguarded, with close to a further 100,000 jobs in associated supply chains and local economies.
The two newspapers will not receive government cash themselves but money is available to help cover their costs in administering the grants.
The papers have partnered in order to "halve the back office costs so that we can give as much as possible away", Alan Qualtrough, editor-in-chief of the Western Morning News told Journalism.co.uk.
"So far we have received no money whatsoever," Qualtrough said.
"It's been all my own time – and there's been a lot of it. It has cost me too, not a lot but a little bit, in order to pay for experts."
Qualtrough was asked by Lord Hesteltine, chair of the Independent Advisory Panel for the RGF, to bid for the fund.
Asked about the benefits he said: "Primarily it is to cement the Western Morning News within the community. And if we hadn't done this the £1 million would not have come to the south west.
"It's going to give us lots of publicity and lots of criticism and it certainly doesn't stop us from criticising the government," he said.
The Western Morning News has also partnered with the University of Plymouth.
"We've got to make sure we are accountable", which is where a partnership with the local university helps, Qualtrough explained.
Speaking to the Liverpool Echo, deputy prime minister Nick Clegg said: "It is absolutely fantastic that the Echo has taken the initiative. This is exactly the type of innovative project we are looking for particularly to help small businesses and create jobs."
"We are delighted to have won government backing for our campaign," said the Echo's editor Alastair Machray.
The second round of the fund is now open until 1 July and will aim to allocate the remainder of nearly £1 billion.
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