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Running a small business has its fair share of risks. To help owners and entrepreneurs understand emerging threats in 2026 and how to prepare, NEXT compiled a list with insights from experts in claims, underwriting, AI and insurance products.

This article identifies the biggest challenges you need to watch out for, what types of businesses will be most affected and the practical steps you can take right now to protect your business.

1. AI misuse and lack of governance could increase your exposure

Businesses most likely to be affected by AI risks:

• Any business that uses AI tools to produce client-facing work
• Businesses using AI for marketing content
• Businesses using AI tools for proposals or quoting
• Consultants producing deliverables or advice
• Professional services including accountants, lawyers, IT consultants, software developers and creative professionals

This is perhaps the singular biggest blind spot of 2026: Small businesses using AI tools without governance could lead to wrong client deliverables, privacy breaches and IP leakage.

There’s no doubt that AI is helping small businesses move faster — creating marketing materials, generating invoices, interpreting data and more. But without proper oversight or controls, these tools can introduce serious risk that can lead to client disputes, reputational harm and financial loss.

“AI can be incredibly helpful, but you still need strong review processes in place to make sure its outputs are accurate, secure and aligned with what your customers expect, or you risk costly losses,” says Julie Roseland, head of commercial liability claims at NEXT.

“As more small businesses turn to generative AI for things like ads, social media posts and other content, we’ll see new vulnerabilities emerge in 2026. When those tools produce material that isn’t fully reviewed, the risk of defamation, copyright infringement, false advertising or other misrepresentations increases.”

And don’t make the mistake of thinking AI risk is limited to tech-forward companies like software developers or marketing consultants. Imagine a construction firm sending proposals, retail businesses generating automated responses to customers or restaurants using AI tools to create promotional content.

Any company that uses generative AI to draft emails, reports, invoices, marketing content or customer communications can inadvertently push out incorrect, harmful or copyrighted material.

How small businesses can mitigate AI risks and liability:

• Train employees on privacy and data handling
• Require human review on all AI-generated content (including review by licensed or credentialed professionals when possible)
• Review client agreements for liability language
• Add professional liability insurance to help protect your business from some of the costs of professional errors

2. Cyber incidents could cause more business shutdowns and data leaks

Businesses most likely to be affected by cyber crime:

• Any business with multiple data touchpoints like consultants, accountants and other professional services
• Businesses dependent on scheduling or POS systems like retail or restaurants
• Businesses that store sensitive client and customer data like financial services, healthcare or online stores

In 2026, cyber risk could move from information theft to operational disruption. This could look like fake invoices, fraudulent damage reports or sophisticated phishing attacks. And the impact could be severe.

In addition to the cost of repairing systems, recovering data and lost revenue, small businesses could also experience an erosion of trust, which leads to customer attrition.

But the biggest potential impact of cyber crime may be business interruptions that eat time, lead to lost productivity, delay projects and make you miss opportunities — all of which can lead to lost revenue. Ransomware or platform outages can lock critical systems and grind your business to a halt.

How small businesses can mitigate their business disruption risk and liability from cyber crime:

• Set up and enforce multifactor authentication (MFA) across your business
• Train staff to identify AI-enhanced scams
• Keep offline backups
• Add cyber liability insurance to help shield your business from some of the costs of cyber crime recovery

3. Extreme weather could cause more commercial property damage

Businesses most likely to be affected by extreme weather:

• Any brick-and-mortar business with a storefront, office or warehouse (restaurants, retail, gyms, etc.)
• Businesses that have products, equipment, furniture or inventory

Severe storms, high winds, fire and unexpected flash floods are becoming more common — especially in locations not historically considered high-risk. Urban flash floods could catch small businesses off guard.

Extreme weather events can be devastating for a small business, leading to massive out-of-pocket costs to cover property damage and lost inventory, as well as ongoing lost income as the business bears the burden of making repairs, replacing equipment and recovering data.

How small businesses can help avoid extreme weather disruptions:

• Stay current on routine building and equipment maintenance
• Install leak sensors and sprinkler systems
• Invest in power backups and generators
• Help protect your business with commercial property insurance for your business building and its contents, and look for coverage that includes business income insurance if you suddenly have to close for repairs

4. Deferred building maintenance could lead to big losses

Businesses most likely to be affected by delayed commercial building repairs and maintenance:

• Any brick-and-mortar business or storefront
• Businesses that rely on tools and equipment (restaurants, manufacturers, etc.)

The costs of things like inflation, labor shortages and supply chain issues can force businesses to delay repairs and regular building maintenance. But this business decision could actually increase your business risk — and the frequency and severity of costly business insurance claims.

And NEXT’s business insurance experts anticipate that deferred general maintenance could get worse in 2026, resulting in more water damage, fire damage and equipment breakdown claims that could interrupt business operations.

How small businesses can help avoid deferred maintenance loss:

• Follow a preventive maintenance schedule
• Document repairs and inspections
• Review your commercial property and equipment breakdown coverage to make sure it’s scaled with your business needs

5. Organized theft and fraud could rise as petty theft declines

Businesses that could be most affected by fraud and theft:

• Any business that stocks products or inventory
• Businesses that make deliveries
• Retail stores (both on Main Street and online)
• Restaurants or any retailers of food and beverage

Business theft and vandalism could start to decline in 2026 as more businesses adopt smart alarms, cameras and other high-tech security tools. These tools could help spot hazards, deter criminal activity, and give owners more visibility into what’s happening in stores.

But NEXT experts expect larger businesses with the resources to invest in these systems to benefit first, and more cash-strapped small businesses to be late adopters.

While traditional security measures help deter spontaneous theft, sophisticated crime rings could evolve to combine in-store and curbside attacks, return abuse and more. And these elaborate schemes could take losses to another level.

Any reduction in traditional criminal activity “will likely come with an increase in cyber theft and AI-generated fraud, like fake invoices or damage reports,” Roseland says.

How small businesses can help avoid losses from theft and fraud:

• Use inventory-tracking systems
• Tighten return policies
• Implement fraud-detection processes
• Consider predictive modeling to shift from a mindset of threat deterrence to threat prediction
• Consider upgrading your general liability insurance to a Business Owner’s Policy (BOP insurance) to help mitigate some of the financial losses of property theft

6. Expanding biometric and privacy laws could expose more businesses to legal liability

Businesses most likely to be affected by privacy lawsuits:

• Any business using customer data or biometrics
• Gyms and fitness studios that use fingerprint check-in systems
• Retailers that use facial recognition cameras or ad-tech tracking
• Restaurants that use loyalty apps to collect personal data

Many states have biometric and privacy laws that allow for lawsuits even if no physical or financial harm has occurred. A small business could face costly legal claims for collecting certain types of data without proper disclosures.

Small businesses could potentially face lawsuits for things like loyalty apps collecting personal data, facial recognition cameras, website tracking tools and fingerprint time clocks.

How businesses can help avoid privacy infringement liability:

• Audit your data collection practices to ensure you’re compliant with local laws
• Add biometric consent language and signage when necessary
• Update your privacy policies and cookie notices
• Add privacy liability coverage to your business insurance

7. Liability claims could rise across all industries

Businesses that could be most affected by legal liability claims:

• Businesses that do deliveries with drivers using their personal vehicle
• Businesses with physical locations and foot traffic
• Restaurants and food and beverage manufacturers who could be susceptible to foodborne illness and liquor liability claims

Roseland has observed, “Liability claims continue to rise in severity. Medical treatment costs are increasing, and nuclear verdicts and third-party litigation funding are pushing losses even higher.”

NEXT sees many indicators for liability exposure increasing for nearly every type of small business heading into 2026, including:

• Rising medical expenses
• More attorney involvement in claims
• Increased pressure on workers in an unstable employment market
• “Social inflation” (meaning lawsuits with higher rewards)

Small businesses often face outsized consequences when liability claims become more expensive and more complex.

How small businesses could help avoid the rising risk of legal liability claims:

• Refresh your staff safety training (especially when turnover is high)
• Keep incident documentation and safety protocols up to date
• Review your business insurance liability limits and consider commercial umbrella insurance for more protection
• Add commercial auto insurance if your business owns vehicles or your employees drive for work

This story* was produced by NEXT and reviewed and distributed by *Stacker.