Citizens' plan yields jobs

Two months after launching a partnership to spur job growth in Massachusetts, Citizens Bank and Governor Mitt Romney said yesterday that the bank has pledged $5.8 million in low-cost loans to expanding companies, with the recipients promising to create 145 jobs.

Citizens has made four loans to companies such as the restaurant chain Legal Sea Foods and medical-device maker Exergen Corp., with several more loans in the works, said Robert E. Smyth, chief executive of Citizens Bank of Massachusetts. ''Citizens is proud to support all businesses as they grow," Smyth said.

But since its inception, Citizens' loan program also has attracted criticism.

The chief executive of Citizens' rival, Sovereign Bancorp, labeled Citizens' efforts ''more sizzle than steak" and launched his own program, which Sovereign said will work better.

The state inspector general's office investigated the Citizens deal and concluded the Romney administration should have put the contract out to bid.

And a top Democrat, Treasurer Timothy Cahill, invited the state's three other big banks to serve on a business task force to study the state's job picture, but he excluded Citizens. (The bank has since joined Cahill's task force.)

Citizens loans money to companies for up to five years at a fixed interest rate of 3.5 percent, which is well below the prime rate of 5.75 percent that banks charge their best business customers. For every $40,000 borrowed, companies pledge to create one job. The bank said its $100 million loan fund will help companies add 2,500 jobs in New England.

But Sovereign's chief executive, Jay Sidhu, said earlier this year that the Citizens program would be difficult for companies to use because of the jobs requirement. He argued that it was unreasonable to expect a company, especially one that is struggling, to commit to the considerable expense of adding jobs. Instead, he said, the Citizens program would probably be used by companies already planning to expand, though the loans might persuade them to do that expansion in Massachusetts, rather than elsewhere.

Sovereign is funding a $200 million loan pool that targets small- to medium-sized Massachusetts businesses, but the bank will not require that they pledge to create a certain number of jobs. Most of its loans will be at interest rates between 4 and 6 percent, said Joe Campanelli, chief executive of Sovereign's New England division. The bank is officially launching its efforts this week, but it already is processing applications for $15 million in loans from about 14 qualified companies, he said.

''We're looking for Massachusetts to improve its reputation as a good place to run your business," he said.

Sovereign, headquartered in Pennsylvania, is Massachusetts' third-largest bank; Citizens, owned by Royal Bank of Scotland, is the state's second-largest bank.

Yesterday, executives at several of the companies that have received loans from the Citizens program praised the bank but said they probably would have expanded without Citizens' low-cost loan. Expressway Motors, a Toyota dealership in Dorchester, is using about $800,000 from Citizens to construct a new and larger dealership, adding about 20 new sales and service technician jobs. If not for the Citizens loan, the company would have taken out a loan with a higher interest rate to finance its expansion but still would have added the jobs, said Robert Boch, president of Expressway Motors. But, he said, the Citizens loan made the process much easier.

An executive at Legal Sea Foods said the restaurant chain has been scouting for new locations on the Eastern seaboard, but Legal's $2 million loan from Citizens will give the restaurant an incentive to add at least one restaurant in Massachusetts. It recently opened a new restaurant in Logan International Airport, and may add another.

Other companies said the loans will help them expand further than they had planned. Exergen Corp., of Watertown, signed a deal in December to distribute its thermometers in Wal-Mart stores, and it needed room to grow. It used a $2 million Citizens loan to buy a larger building, and it plans to add 50 jobs, said Francesco Pompei, Exergen's president.

Exergen would have expanded anyway, he said. But with the Citizens loan, Pompei said, Exergen can put the money that it saved on interest into the company's research and development efforts and into buying more machines for its manufacturing operations. That ultimately will help the company grow even faster, he said.

A Citizens spokeswoman, Melodie Jackson, said the bank is not surprised that its first loan recipients already were planning to expand. Citizens expects that its program over time will induce other companies to consider adding jobs, as well. ''We're going to see a whole range of companies that take advantage of it," she said.

Citizens funds a similar loan program with the state of Pennsylvania that has been operating since last year. The bank has lent $38.3 million to 13 companies that promised to create 1,353 jobs, Jackson said.

David Wyss, chief economist for Standard & Poor's, said Citizens' loans-for-jobs program would probably appeal to a narrower group of companies that are looking to expand, while the Sovereign low-rate loan program might find a broader audience among troubled companies and others that need cash for any number of reasons.

In Massachusetts, Citizens executives approached the Romney administration in November. The bank puts up the money and takes the risk on the loans, while the state markets the program and makes sure employers follow through on their job promises.

The bank agrees to the low rate of 3.5 percent. But after five years, if a company hasn't paid off its loan, it would work out a new deal that could involve higher interest rates. The loans can range between $250,000 and $10 million. If a business does not create the required number of jobs, Citizens can increase the interest rate, or give the company additional time.

Sasha Talcott can be reached at stalcott@globe.com.