Third-Party Cyber Risks: How Small Businesses Can Protect Themselves

By Luke Vander Linden, Retail & Hospitality ISAC

When you run a small business, you likely depend on outside partners more than larger companies. Payroll services, credit card processors, scheduling apps, and suppliers of all kinds keep things running smoothly. But when attackers break through the cyber-defenses of one of those vendors, the damage doesn’t stop with them – it can quickly reach you.

That’s why third-party cyber risk has become such a serious issue. Smaller businesses sometimes assume that attackers only go after larger targets, but in reality, small companies are at risk as well. Limited budgets and lean staff make small shops, veteran-owned firms, and family businesses easier to disrupt. According to the U.S. Chamber of Commerce, 27 percent of small businesses believe a single cyber incident could put them out of business for good.

Let’s take a walk through what third-party risk looks like in practice, why it matters for businesses of every size, and steps you can take right now to reduce your exposure.

Determining your risk

Third-party risks can show up in more places than you might expect: the vendor who manages your website, the company that handles your billing, the supplier using a shared ordering portal, or even the cleaning service that has access to your office Wi-Fi. Each of these connections creates a doorway, and if one is left unguarded, an attacker can walk straight through it into your business.

Where those vulnerabilities show up varies from business to business. A retailer might rely on a single point-of-sale system that links inventory, payments, and customer loyalty data. A doctor’s office might outsource billing to a third-party service that has access to sensitive patient information. A contractor might use a shared scheduling platform with multiple subcontractors logging in from their own devices. Each case introduces risk you don’t directly control.

That’s why it pays to get specific. Begin by listing your core vendors and the services they provide, then trace what parts of your business depend on them – payroll, payments, customer data, daily operations, etc. Think about the kind of access each one has: do they log into your systems directly, store your information on their servers, or connect through a shared portal?

Finally, ask yourself what the consequences would be if that connection were disrupted. Even a half-hour conversation with your team can uncover exposures you hadn’t considered, and putting those risks on paper makes them easier to manage.

Key takeaway: Awareness is your first defense. You can’t protect what you haven’t identified.

How attacks sneak in

Once you’ve mapped your vendors, the next step is understanding how attackers might exploit those connections. One common method is through software updates. Imagine a coffee shop that relies on a point-of-sale system for every sale. If hackers manage to compromise the vendor’s network or development tools, they can slip malicious code into a routine update. The shop then unknowingly installs malware along with what looks like a legitimate patch.

Email systems are another frequent entry point. When a supplier’s account is actually taken over, every message coming from that account can look legitimate to your staff. Attackers can send invoices, contracts, or links that quietly deliver malware or ransomware. Because the emails come from a real address, the danger can be harder for employees to spot.

Another tactic is outright impersonation. Here, criminals don’t need access to a vendor’s systems – they just mimic them. Fake domains, look-alike addresses, and urgent messages can pressure staff into sharing login credentials or approving fraudulent payments. A threat actor could even call or actually come into the store, impersonating a vendor and may capitalize on insider knowledge such as store policy, procedures, and tools. The best defense in these cases is cultural as much as technical: encourage your team to pause, confirm, and question unusual requests before acting.

Key takeaway: Attackers exploit the trust you place in everyday communications, so teaching staff to verify unusual requests is your best defense.

Simple protections

You don’t need a large IT team or expensive tools to make your business harder to target. A few small adjustments can go a long way toward limiting the damage a third-party breach might cause.

Start with multi-factor authentication (MFA). This means requiring two forms of proof before anyone can log in, usually something you know (a password) plus something you have (a phone or an app). For example, after entering a password, you might need to type in a one-time code sent by text message, approve a prompt in an authenticator app, or use a hardware key that plugs into your device. Most major services, from email providers to accounting platforms, include MFA in their security settings, and turning it on usually takes just a few minutes.

Next, think about your data backups. Schedule automatic backups for your most important files, and test them regularly to make sure you can restore data quickly. For extra safety, keep one copy offline – on an external drive you disconnect after use – and another in a trusted cloud service. That way, even if ransomware locks up your systems, you can recover without starting from scratch.

Finally, practice your response. Pick one or two realistic “what if” scenarios, such as your payment system going down or vendor access being cut off. Assign roles in advance – who contacts the vendor, who notifies customers, who checks the backups – and run through the steps as a team. These short drills don’t take much time but can make the difference between a short disruption and a full-blown crisis.

Key takeaway: Even without a big cybersecurity budget, small businesses can take practical, affordable steps to reduce third-party risks.

Community defense

Cybercriminals don’t work in isolation – they share stolen data, sell attack tools, and trade tactics with one another. That constant exchange makes it hard for any small business to keep pace alone. The best response is to mirror that cooperation on the defensive side. Information-sharing groups act like a neighborhood watch for cybersecurity: when one business spots a threat, others benefit from the warning. Members gain early alerts, practical best practices, and a chance to see how their defenses compare to peers.

The strongest defense comes from working together, sharing knowledge and preparation so a single attack doesn’t spread unchecked through the community.