That's a broker's choice and not a rule. When shares are loaned only the broker knows whether those shares came from a margin/non-margin/IRA or even a 401K account. Telling customers they won't loan non-margin shares is a selling point cause they use non-margin balances to fund margin accts. It also slows the newbie up from losing their money if the acct is non-margin. Takes away that temptation to flip.