Banks need to move from an emphasis on real estate to a focus on small business loans, said North Carolina Banks Commissioner Joe Smith in a speech to the University of North Carolina Banking Institute in Charlotte on Thursday.

“Small business lending should become an area of greater emphasis for banks as the real estate business, including particularly acquisition and development lending is right sized in loan portfolios. If we are serious about the commitment the industry has to ‘the communities it serves,’ small business lending should be a growing segment of the business of banking,” Smith said in his speech.

Though it’s a transition for most banks, it should not be that difficult, according to Smith.

“I don’t think it’s a huge shift, it’s a change in emphasis,” Smith told the Business Journal. “The growth engine for a long time and with a lot of benefit was acquisition and development loans, as you know in Wilmington.”

But those ties to development and construction loans run deep in the banks’ books.

“The A&D and construction--banks did rely on that for a long time. That was gravy,” said Mark Johnson, area executive of NewBridge Bank. “That transition is not an easy one, especially in coastal markets. We’re a very real estate heavy area. Our portfolios, it’s the same across the board at all the banks, is heavy in real estate.’

According to Smith, it may take more work for banks to offer and care for smaller businesses and individuals, but that it would help foster economic growth in the area. Smith said he is working the with the state’s small business commissioner Scott Daugherty to create resources for those seeking small business loans.

“In terms of Wilmington’s development, my sense is that Wilmington can be a hotbed of small business activity, I hope Wilmington can benefit so that economy in Wilmington grows overall, that’s the whole purpose,” Smith said.

Live Oak Bank based in Wilmington does mostly Small Business Administration (SBA) loans for veterinarians and dentists across the United States.

“Well, I’m the biggest fan that the SBA has in America,” said Live Oak Bank CEO James Mahan. Mahan said his bank is the third largest SBA lender in the United States and said that other banks view the SBA process as too tedious.

“Most banks are not familiar with the program, they believe its cumbersome and that’s just not true,” Mahan said. “As long as they work at it, it’s not very difficult to do.”

According to Mahan, SBA loans have been a boon for Live Oak. Their bills are less than one percent past due with most loans backed substantially by the federal government. Their average loan is $1.3 million.

SBA and small business loans even in real estate is favorable in the market right now, according to Johnson.

“If you’re requesting to purchase your own property or a piece of property where your business occupies 51 percent or more, that is considered owner-occupied and that’s a pretty valuable loan to banks right now,” Johnson said. “It’s not going to be an easy transition, we have to be creative innovative and find ways to make new loans and SBA is a big part of it.”