You're absolutely correct. People are commonly confused as to...

You're absolutely correct.

People are commonly confused as to why a large, long shareholder would loan out their shares for someone else to short. It doesn't make sense to people that a a holder would risk "hurting" the share price. There is however a logical explanation:

1. The lender gets a return from the investment in the form of interest payments where no return exists, say from dividends.
2. The lender recognises that the underlying value of the company is not linked to short-term price movements. Should they be correct about their assessment of the intrinsic value of the business it will eventually be reflected in the share price.
3. They know shorters are working for them when they have to purchase shares on market. Every long is a potential seller, every short is a committed buyer.
4. Shorters can provide liquidity in a tightly held stock.

It's worth keeping in mind that shorts and longs are attempting to do the same thing, that is: to buy low and sell high. Their timing may be different but if we didn't have these differences we wouldn't have a market.