From drafting emails to analyzing data, small and medium-sized businesses worldwide are adopting AI tools to save time and boost efficiency. 

However, adoption often moves faster than governance. While employees may be eager to use artificial intelligence to boost productivity, businesses that lack clear policies and safeguards can unintentionally expose sensitive information, create compliance issues, and introduce cybersecurity risks.

Our recent survey of small business owners found that nearly 88% already use AI tools, but 54% use them without any formal guidelines or policies!

The good news is that you don't have to choose between innovation and security. By understanding common AI-related risks and establishing a few practical guardrails, small businesses can take advantage of AI while helping protect their operation, employees, and customers. 

Common AI risks for small businesses 

Sharing sensitive information with public AI tools 

One of the most common AI risks occurs when employees enter sensitive information into public AI platforms. An employee might copy and paste confidential financial information, customer data, internal reports, or contract language into a chatbot to summarize a document or improve its wording. Importantly, information shared with public AI systems could be stored or processed by third parties.  

This can pose risks to proprietary business information, customer privacy, and regulatory compliance. Employees may not realize that data entered into an AI tool can leave the organization's direct control. Before adopting AI, clearly define in writing what information can and cannot be shared with external platforms.

Using AI to review proprietary code or systems

Developers and IT professionals now often use AI tools to troubleshoot code, generate scripts, and accelerate projects. While these tools can be helpful, they can create risks if employees upload proprietary source code, database structures, or sensitive technical documentation. Sharing this information may expose intellectual property or reveal details about internal systems that were never intended to leave the organization. In many cases, employees may not even realize that the information they're sharing could be considered sensitive.

Just like with other employees, establish clear guidelines for how developers and technical teams can use AI tools safely.

Trusting AI without verification – “hallucinations"

AI systems can generate content that appears accurate and professional, even when it contains errors. This phenomenon, often called "hallucination," occurs when an AI model presents incorrect information as factual. Obviously, this can create huge problems for small businesses and everyone else. Employees may use AI-generated content for customer communications, business reports, compliance documentation, or software development. If that content is published or deployed without review, mistakes spread at the speed of the internet.

AI should be treated as a tool that assists human decision-making—not as a replacement for it. All AI-generated material needs human review.

The rise of shadow AI

Many employees discover new AI tools on their own and begin using them without approval from leadership or IT staff. This practice, called "shadow AI," creates visibility and security challenges. Unapproved browser extensions, AI assistants, and third-party applications may collect data, store credentials, or integrate with company systems in ways that are not fully understood. When organizations don't know which AI tools employees are using, it becomes very difficult to manage risk. A security incident involving a "shadow AI" service that your employees don't know they're using could expose sensitive business information or customer data.

AI best practices for small businesses

Now that you know the risks, here is a checklist of what you can do.

Create an AI Acceptable Use Policy (AUP)

Every business should establish basic rules for AI usage. An AI Acceptable Use Policy (AUP) helps employees understand how AI can be used safely and responsibly within the workplace. At a minimum, the policy should clearly identify what types of information should never be entered into public AI tools. This may include personally identifiable information (PII), protected health information, financial records, customer data, trade secrets, and proprietary source code. Your AUP can also list approved AI tools that employees are authorized to use.

Choose business-friendly AI platforms

Not all AI services offer the same level of privacy and security protections. Small businesses should consider business or enterprise versions of AI tools that provide stronger contractual protection around data handling and model training. These offerings often include administrative controls, security features, and privacy commitments that may not be available with free consumer versions. Like with any tech, review an AI platform's privacy policy, security controls, and data retention practices.

Keep humans in the loop

Human oversight remains, maybe, the most important safeguard when using AI. Employees should verify AI-generated content before sharing it externally or using it to make business decisions. Software developers should review AI-generated code before deploying it into production environments. Marketing teams should fact-check AI-generated content before publication. Work with your team to create a review process.

Train employees on AI risks

Employees need practical guidance on how to use AI responsibly. Short, focused training sessions can help staff understand common mistakes and learn how to avoid them. Training should cover topics such as protecting sensitive information, recognizing AI-generated phishing attacks and deepfakes, and understanding the differences between public AI tools and enterprise-approved solutions. Our survey found that over 40% of small business owners said short training (15 to 30 minutes) is their most needed tool, so think about keeping training short, sweet, and often!

Secure AI adoption starts with clear expectations 

AI has the potential to help small businesses work more efficiently and compete in a rapidly changing marketplace. Like all technology, however, it introduces new risks that businesses must manage. The most successful small businesses that see opportunities in AI will be those that establish clear expectations, train their employees, and implement practical written safeguards. 

Read the small business owner survey that powered this piece and sign up for the NCA’s CyberSecure My Business for more information. Also, sign up for our free email newsletter for more cybersecurity best practices!