“Is that because if you borrow the shares and sell them, you...

“Is that because if you borrow the shares and sell them, you have cash in pocket that can earn interest until you cover?
In terms of the arbitrage gain, for example, if I borrowed 1M SLR shares and sold them at yesterday's close $3.50, pocketed $3,500,000 and used that to buy 6.28M IGR shares, at .545 (yesterday's close) that would cost $3,422,600 leaving me $77,400 clear, still owing someone 1M SLR shares. I give them back when my 6.28 IGR shares are converted to SLR, keeping the $77K.”

That’s correct.

”Would whoever I borrow the SLR shares from require some borrowing fee or interest for the time I hold them? Would the broker who let me short sell need to see some security over the borrowed shares?”

You have to pay a borrowing fee when you borrow the shares but you receive cash when you short them which is effectively held in trust to make sure you can cover your short- i.e. you can’t use it to buy another stock.
The interest you earn on the cash offsets the lending fee but with a small net profit for you (0.3% per year on one of my accounts).