General collateral names cost a fraction of a percent a year. Hard-to-borrow names can cost 20%, 50% or more annualised, charged daily, and the rate changes without notice. A backtest that shorts small caps without modelling borrow is not modelling the strategy at all.
Availability is as important as price. Shares can become unborrowable overnight, and existing positions can be recalled, forcing a buy-in at the worst possible moment, typically during a short-squeeze.
Historical borrow data is expensive and rarely held by retail backtesters. A workable proxy is to exclude names with very high short-interest or very small float from the short universe, which approximates the constraint honestly rather than ignoring it.
Related: transaction-cost-modelling, short-selling, financing-cost, universe-construction