Dear @Hannah Thompson,
I hope you're having a nice day. Thank you for reaching out to the Microsoft Q&A forum and for sharing your concerns.
I understand how inconvenient it must be to maintain confidentiality while trying to share specific files from your SharePoint site with collaborators who are not site members. Based on the error message you've received, this issue is typically caused by restricted sharing settings, either at the site level or across your organization.
To share individual files without granting access to the entire site, please follow the steps below:
Note: These actions require SharePoint Administrator or Global Admin permissions.
1/ First, I recommend checking whether the Limited-access user permission lockdown mode feature is active on your site. This feature can prevent sharing even for Site Owners.
Go to your SharePoint site.
Click the gear icon (⚙️) > Site Information.
Select View all site settings.
Under Site Collection Administration, click Site collection features.
Locate Limited-access user permission lockdown mode and click Deactivate.
2/ Check Site-Level Sharing Settings
Ensure your site allows sharing with users outside the site membership.
Go to the Microsoft Admin center > SharePoint Admin Center
Navigate to Sites > Active Sites.
Select your site and click Sharing.
Set the sharing level to “New and existing guests” or “Anyone”.
Save your changes.
3/ Check Organization-Level Sharing Settings
If site-level settings are correct, but sharing is still restricted, your organization may have global sharing limitations.
Go to the Microsoft 365 Admin Center.
Navigate to Settings > Org Settings > SharePoint.
Under user sharing, ensure sharing with guests or anonymous users is allowed.
Additionally, you can configure more advanced external sharing options depending on your organization’s policies and compliance requirements.
Additional information is available in the following resource:
Sharing options are grayed out when sharing from SharePoint Online or OneDrive - SharePoint | Micro…
Limit sharing in Microsoft 365 | Microsoft Learn
You can try these workarounds and update us. While our initial response might not always resolve the issue right away, your input and any additional details you can share will really help us work together toward a solution. Your cooperation means a lot, and it helps us ensure that we can deliver the best possible support tailored to your situation.
If the answer is helpful, please click "Accept Answer" and kindly upvote it. If you have extra questions about this answer, please click "Comment".
Note: Please follow the steps in our documentation to enable e-mail notifications if you want to receive the related email notification for this thread.