"hard to borrow" means that those who do have long positions can get paid for allowing their shares to be borrowed. the borrowers can put up cash collateral plus pay a daily interest rate while the shares are borrowed. it is not that the shares are not available, rather, think of it as the shares have to be borrowed at more onerous terms by the short seller
<< I may be misunderstanding, but in order to short, there must be shares available. >>
Most people don't short penny stocks. Shorting penny stocks is not allowed at many brokerages, and those that allow it usually require a tremendous margin requirement of $2 - $2.5 per share. It just doesn't make any sort of sense.
"Shorting" is just a rumor made up to try and explain away a drop in the share price.