All indicators are that 2012 is set to be a challenging economic year.

As banks tighten up on loan requirements and funding becomes more difficult to secure, South African business owners are urged to make funding provisions to protect their businesses from the damaging financial effects of market fluctuations. However, they may need to look to sources other than banks to do so.

This is according to Gary Palmer, CEO of Paragon Lending Solutions, who said growing pressure on banks due to economic stress and new legislation is likely to significantly affect business owners.

"It is difficult to fathom anything but a weak global growth environment in the coming years. As a result and as banks struggle to meet the stringent net funding requirements of Basel III, lending policies are not likely to loosen up for some time and banks will likely pursue other, more profitable income streams such as unsecured lending," said Palmer.

Palmer said increased tax rates and austerity packages - especially in the US and eurozone - with a knock-on effect on demand for resources, will affect the domestic economy negatively.

Local interest rates are set to remain unchanged for the first few months of 2012, in spite of some concern that the South African Reserve Bank is underestimating the effect of the rand's recent weakness on inflation.

Palmer said provided gradual global economic recovery prevails, analysts predict that the next domestic interest rate hiking cycle will probably start in the third quarter of 2012.

"Increased interest rates will put additional pressure on borrowers to meet monthly instalments required by the banks and other lenders. All borrowers, including property investors, property developers and owner-managed businesses, should do a stress test on their forecasted cash flows to ensure they will still have the ability to meet monthly interest obligations given the possibility of various interest rate increases."

In addition, though their baseline forecast is for the Consumer Price Index to re-enter the target in the first half of 2012, analysts warned that if recent rand weakness is sustained, there is a significant risk that CPI will remain above target throughout 2012 - further reducing disposable income levels and placing additional financial strain on South African businesses.

Palmer also predicted a weak outlook for the property market, especially on commercial property.

"Business owners need to make financial provisions for this kind of economic climate now," he said.

"This means seeking financial advice and sourcing additional funding from alternative sources who will meet their requirements quickly and reliably," said Palmer.