Why would there be an interest reserve when the collateral is already $250K?  

The reason I think this is a little different then normal is that there is no home as collateral for the loan as it is just covering rehab costs.

That is something I am strongly considering doing on the properties that don't have mortgages (can't do it on encumbered properties because the mortgagees require that their collateral be insured, understandably so).

Look for seller financed deals and use the equity in your properties to pledge as collateral instead of putting down a big chunk of change.

2) Business Loan- Assuming my credit sucks (though it is about 700) can I take a loan and use the property as collateral to make it easier to be approved?

Conversely would the liens have been extinguished since there is no collateral left expect for the land .

I know of some HML that will take another property as the down payment collateral.

We generally don't get the original app in the collateral package.

Second question is, is there a lender that is ok with a 2nd lien position to secure collateral for equity partners?

It worked sometimes because the banks didn't want the collateral back.Balloons are but one commercial loan product offered, you can also get fixed typically either 10 or 15 year, along with regular adjustable mortgages.