You have to pay to borrow. If you're a small shareholder, your shares are available for your broker to lend if you borrow money against them; a large institution is usually able to negotiate rates at which it will lend its shares.

Humm... as a sort of hedging against the stock going down?

It's not really a hedge. A hedge would be something with an inverse correlation -- so when the stock went down, your borrowing income would go up. In general, the opposite is the case: if the stock goes down, but the borrowing cost is the same in percentage terms, your borrowing income goes down. The exception is if the stock goes down and demand for shorting goes up so fast that the interest rate on borrowed stock goes up. Even then, it will almost certainly be a small cushion (losing 49% instead of 50%) not a hedge.

That said, it's still income you wouldn't otherwise have.

Better question is why you would sell short stock in a company that someone is known to want to buy?

It's always like that - someone sells, someone buys. It's always exactly 50/50.

>why would you lend you stock so somebody else can make money out of it?

You think it's going up, so you keep it. They think it's going down, so they borrow it from you and sell it.

They'll return it eventually, so you don't care - you don't need it right now.