How to Manage Small Business Vendor Relationships

Partnering with small businesses has many advantages. Their innovation, agility, and specialized expertise can give your organization a competitive edge.  

But working with small vendors also has its challenges, especially when it comes to due diligence. Unlike large vendors, small businesses may lack documentation and third-party audits, and they may not have the resources to respond to detailed questionnaires. That doesn’t mean your organization can’t work with small vendors – you just need to manage the relationship the right way.   

Who is a Small Vendor?

A small vendor is a third-party provider with limited operational scale, revenue, staff, or infrastructure compared to larger, more established vendors. They may be startups, niche service providers, or regional firms that offer specialized products or services. They are often privately held.

While small vendors can offer innovation, flexibility, and personalized service, they also come with risks: 

• Limited Resources: Smaller vendors may lack dedicated compliance, legal, or cybersecurity teams, making it harder to meet your regulatory or operational standards. Running lean, they may struggle to complete extensive questionnaires.
• Business Continuity Risks: They may not have mature business continuity or disaster recovery plans, increasing the risk of service interruptions. 
• Financial Stability: Small vendors may face greater financial uncertainty, especially in volatile markets or early growth stages. If it’s privately held, it may also limit the financial information it shares since it isn’t required to disclose detailed financial data.
• Scalability Concerns: Their ability to grow or scale with your organization can be limited, which may affect long-term viability.
• Inconsistent Documentation: Small vendors may lack documentation like SOC 2 reports or comprehensive financial statements. This isn’t a reflection of the vendor’s quality or reliability, but most likely of their scale, capacity, and availability. Policies, procedures, and audit trails may be informal or poorly documented, complicating due diligence and oversight.
• Vendor Lock-In: If the vendor provides a unique or highly customized service, it can be harder to switch or replace them if issues arise. 

Despite these challenges, small vendors can be wonderful partners. They often have a more personal stake in your organization’s success and are motivated to maintain strong relationships.

Understanding the characteristics and challenges of small vendors lets you better manage the relationship.

Related: Challenges and Tips for Collecting Financial Information on Private Vendors 

How to Manage Small Vendor Relationships 

Small vendor relationships can be challenging—but they often bring innovation, agility, and niche expertise to your organization. Effectively managing these relationships helps reduce risk while maximizing value. 

Here are 6 strategies to manage small vendor relationships successfully: 

• Provide documentation alternatives – There are several documentation alternatives to consider. If the small vendor doesn’t have a SOC report, consider using questionnaires like NIST CSF, SIG or SIG Lite, or an ISO certification. Ask for any third-party audits the vendor may be able to provide. Review informal documentation of security practices for insight into the vendor’s risk posture. Consider performing a site visit to evaluate the vendor’s operations.  
• Create customized questionnaires – Another alternative to vendor documentation is a customized questionnaire. Tailor this to the vendor’s product or service. Ask questions about their security practices, compliance measures, and financial stability.  
• Maintain open communication – Establish a transparent relationship with the small vendor. Clearly explain your due diligence process, why it’s necessary, and what’s expected. and why it’s important for your organization to assess the vendor’s risks. This builds trust and sets the foundation for a stronger working relationship.
• Collaborate to resolve issues – Approach small vendor relationships as partnerships. Work together to find solutions to issues when they arise and brainstorm how to improve your products and services. Creating a collaborative atmosphere leads to a better and more effective relationship.  
• Review your organization’s risk appetite – It may turn out that a small vendor relationship poses more risk than your organization is comfortable with. Evaluate whether the vendor’s risk profile aligns with your organization’s risk appetite, and don’t be afraid to say no to partnering if it’s too risky.
• Monitor small vendors frequently – Small vendors often operate with limited resources, which can increase their risk profile. Monitor these vendors more closely — especially for cybersecurity, privacy, and operational vulnerabilities. Set up news alerts, conduct regular reviews, and adjust oversight based on their risk tier.

Related Content: Third-Party Risk Management Checklist  

How a TPRM Program Supports Small Vendor Management 

Small vendors often don’t have the standard documentation larger vendors provide — like SOC reports, detailed financial statements, or formal policies. That can make due diligence more complex. A strong third-party risk management (TPRM) program doesn’t just enforce requirements — it equips your organization to apply them thoughtfully.

Here’s how a TPRM program helps: 

• Establishes a risk-based framework – A TPRM program supports flexible, tiered due diligence based on risk — not vendor size. This means small vendors can still be assessed appropriately, without forcing them to meet unrealistic documentation standards. 
• Defines acceptable alternatives – Instead of rigid checklists, a mature TPRM program allows for approved substitutes, like customized questionnaires, ISO certifications, or third-party audits in place of a SOC report. A good TPRM policy outlines what’s acceptable and when, giving teams clarity and consistency. 
• Promotes documentation consistency – Even when a vendor lacks formal reports, a TPRM program helps your organization collect, store, and evaluate whatever information is available, whether it’s a security overview email, a site visit summary, or informal policy documentation.  
• Improves internal alignment and accountability – TPRM provides governance and an audit trail that ensures decisions are intentional, documented, and aligned with your organization’s risk appetite. 
• Empowers informed decision-making – A TPRM program doesn’t just identify gaps — it puts them in context. This allows stakeholders to weigh the value of the vendor relationship against the associated risks, and make sound, defensible decisions — even when traditional documentation is missing. 

When working with a small vendor, it’s important to balance the desire to innovate with your organization’s risk appetite. Small vendor relationships can offer agility, innovation, and a competitive edge, but they also come with challenges, particularly around documentation, scalability, and risk visibility.

Effectively managing these relationships means going beyond standard due diligence. It requires flexibility, collaboration, and a thoughtful approach to assessing risk.

A well-structured TPRM program provides the framework to evaluate small vendors on a case-by-case basis, using risk-based tiers and approved documentation alternatives. It helps ensure consistent oversight, informed decision-making, and alignment across the organization — so you can confidently work with small vendors while protecting your operations, compliance, and reputation.

By combining the right tools, clear expectations, and a risk-aware culture, your organization can unlock the value of small vendor partnerships — without compromising on security or resilience. 

Learn tips for collecting due diligence documentation in this infographic.