A short seller must deliver real shares at settlement, so the broker borrows them from a lender: a custodian bank, an index fund, or another customer's margin account. The borrower posts collateral, usually cash worth slightly more than the stock, and pays a borrow-fee. The lender keeps most of the fee and the broker takes a cut.
Two consequences matter to the lender. Lent shares cannot be voted, and dividends arrive as a substitute payment that is not a qualified-dividend for tax purposes. That is the quiet cost of a broker's fully paid lending program.
Example: 100,000 shares at $40 are lent, with $4.4M of collateral posted. At a 3% annual fee the borrower pays about $120,000 a year, of which the fund might keep $85,000 and the agent $35,000.
Related: borrow-fee, share-recall, short-selling, rebate-rate, hard-to-borrow