<PAGE>   1

                           NINTH AMENDMENT TO LOAN AND
                               SECURITY AGREEMENT

                                                                    EXHIBIT 10.1

        THIS NINTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Amendment"),
dated as of March 31, 2000, is entered into by and between CONGRESS FINANCIAL
CORPORATION (WESTERN), a California corporation ("Lender"), with a place of
business at 251 South Lake Avenue, Suite 900, Pasadena, California 91101 and
KRAUSE'S CUSTOM CRAFTED FURNITURE CORP., a California corporation (formerly
known as Krause's Sofa Factory), and its wholly owned subsidiary, CASTRO
CONVERTIBLE CORPORATION, a New York corporation (jointly and severally,
"Borrower"), with its chief executive office located at 200 North Berry Street,
Brea, California 92821.


                                    RECITALS

        A. Borrower and Lender have previously entered into that certain Loan
and Security Agreement dated as of January 20, 1995, as amended by that certain
First Amendment to Loan and Security Agreement dated as of May 10, 1996, that
certain Second Amendment to Loan and Security Agreement dated as of August 26,
1996, that certain Third Amendment to Loan and Security Agreement dated as of
November 25, 1996, that certain Fourth Amendment to Loan and Security Agreement
dated as of August 14, 1997, that certain Fifth Amendment to Loan and Security
Agreement dated as of December 11, 1997, that certain Sixth Amendment to Loan
and Security Agreement dated as of March 15, 1999, that certain Seventh
Amendment to Loan and Security Agreement dated as of August 23, 1999 and that
certain Eighth Amendment to Loan and Security Agreement dated as of December 15,
1999 (collectively, the "Loan Agreement"), pursuant to which Lender has made
certain loans and financial accommodations available to Borrower. Terms used
herein without definition shall have the meanings ascribed to them in the Loan
Agreement.

        B. Borrower has requested that Lender (i) modify the negative covenant
relating to permitted indebtedness to allow up to Sixty-Five Million Dollars
($65,000,000) of indebtedness to be outstanding to Parent and (ii) adjust the
minimum Adjusted Net Worth covenant to twelve Million Dollars ($12,000,000).

        C. Lender is willing to agree to make such further amendments to the
Loan Agreement and such waiver under the terms and conditions set forth in this
Amendment. Borrower is entering into this Amendment with the understanding and
agreement that none of Lender's rights or remedies as set forth in the Loan
Agreement is being waived or modified by the terms of this Amendment.

        NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:



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<PAGE>   2

        1.     Amendments to Loan Agreement.

Paragraph (e) of Section 9.9 of the Loan Agreement (entitled "Indebtedness") is
    hereby amended and restated in its entirety as follows:

                      "(e) unsecured indebtedness of Borrower to Krause's
               Furniture, Inc., a Delaware corporation (`Parent'), in the
               maximum principal amount of Sixty Five Million Dollars
               ($65,000,000), plus any amounts added as principal for accrued
               and unpaid interest thereon, which indebtedness is subject to,
               and subordinate in right of payment to, the right of Lender to
               receive the prior payment in full of all of the Obligations;
               provided that: (i) Borrower shall not, directly or indirectly,
               make any payments in respect of such indebtedness, including, but
               not limited to, any prepayments or other non-mandatory payments,
               except that until an Event of Default, or event which with notice
               or passage of time or both would constitute an Event of Default,
               shall exist or have occurred and be continuing, Borrower may make
               payments of principal and interest in accordance with the terms
               of that certain Amended and Restated Subordination Agreement
               between Parent and Lender dated August 26, 1996, as amended from
               time to time (the "Subordination Agreement"), (ii) Borrower shall
               not, directly or indirectly, (A) amend, modify, alter or change
               any terms of such indebtedness or any agreement, document or
               instrument related thereto, or (B) redeem, retire, defease,
               purchase or otherwise acquire such indebtedness, or set aside or
               otherwise deposit or invest any sums for such purpose, except as
               permitted by the Subordination Agreement, (iii) Borrower shall
               furnish to Lender all notices, demands or other materials
               concerning such indebtedness either received by Borrower or on
               its behalf, promptly after receipt thereof, or sent by Borrower
               or on its behalf, concurrently with the sending thereof, as the
               case may be and (iv) copies of all notes, instruments and/or
               agreements evidencing such indebtedness shall be delivered to
               Lender and be in form and substance satisfactory to Lender."

Section 9.14 of the Loan Agreement (entitled "Adjusted Net Worth") is hereby
    amended and restated in its entirety to read as follows:

                      "9.14 Adjusted Net Worth. Borrower shall, as of the end of
               each fiscal quarter of Borrower, maintain Adjusted Net Worth of
               not less than twelve Million Dollars ($12,000,000)."

        2. Effectiveness of this Amendment. Lender must have received the
following items, in form and substance acceptable to Lender, or evidence of the
occurrence thereof, before this Amendment is effective and before Lender is
required to extend any credit to Borrower as provided for by this Amendment.

(a)    Amendment. This Amendment fully executed in a sufficient number of
       counterparts for distribution to Lender and Borrower.

(b)    Authorizations. Evidence that the execution, delivery and performance by
       Borrower and each guarantor or subordinating creditor of this Amendment
       and any instrument or agreement required under this Amendment have been
       duly authorized.

(c)    Representations and Warranties.  The representations and warranties of
       Borrower set forth in the Loan Agreement must be true and correct.



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<PAGE>   3

(d)    Acknowledgment.  Lender has received counterparts of the Acknowledgment
       appended hereto executed by the Parent.

(e)    Other Required Documentation. All other documents and legal matters in
       connection with the transactions contemplated by this Amendment shall
       have been delivered or executed or recorded and shall be in form and
       substance satisfactory to Lender.

(f)    Payment of Modification Fee. Lender shall have received from Borrower a
       modification fee of five thousand Dollars ($5,000) for the processing and
       approval of this Amendment, which fee shall be fully earned as of and
       payable on the date hereof.

        3. Choice of Law. The validity of this Amendment, its construction,
interpretation and enforcement, and the rights of the parties hereunder, shall
be determined under, governed by, and construed in accordance with the laws of
the State of California governing contracts wholly to be performed in that
State.

        4. Counterparts. This Amendment may be executed in any number of
counterparts and by different parties on separate counterparts, each of which
when so executed and delivered, shall be deemed an original, and all of which,
when taken together, shall constitute but one and the same instrument.

        5. Due Execution. The execution, delivery and performance of this
Amendment are within the powers of the Borrower, have been duly authorized by
all necessary corporate action, have received all necessary governmental
approval, if any, and do not contravene any law or any contractual restrictions
binding on Borrower.

        6. Otherwise Not Affected. In the event of any conflict or inconsistency
between the Loan Agreement and the provisions of this Amendment, the provisions
of this Amendment shall govern. Except to the extent set forth herein, the Loan
Agreement shall remain in full force and effect.

        7. Ratification. Borrower hereby restates, ratifies and reaffirms each
and every term and condition set forth in the Loan Agreement, as amended hereby,
and the Financing Agreements effective as of the date hereof.

        8. Estoppel. To induce Lender to enter into this Amendment and to
continue to make advances to Borrower under the Loan Agreement, Borrower hereby
acknowledges and agrees that, after giving effect to this Amendment, as of the
date hereof, there exists no Event of Default and no right of offset, defense,
counterclaim or objection in favor of Borrower as against Lender with respect to
the Obligations.

        IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the day and year first above written.




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<PAGE>   4

                                      KRAUSE'S CUSTOM CRAFTED FURNITURE CORP.,
                                           a California corporation


                                           By:     /s/ Robert A. Burton
                                              ------------------------------
                                           Name:  Robert A. Burton
                                                ----------------------------
                                           Title:  Exec. V.P./CFO
                                                 ---------------------------

                                           CASTRO CONVERTIBLE CORPORATION,
                                           a New York corporation


                                           By:      /s/ Robert A. Burton
                                              ------------------------------
                                           Name:  Robert A. Burton
                                                ----------------------------
                                           Title:  Exec. V.P. / CFO
                                                 ---------------------------


                                      CONGRESS FINANCIAL CORPORATION (WESTERN),
                                           a California corporation


                                           By:       /s/ J. K. Scott
                                              ------------------------------
                                      Name:  Jeffrey K. Scott
                                            --------------------------------
                                      Title:  Vice President
                                            --------------------------------




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<PAGE>   5

                                 ACKNOWLEDGMENT


        The undersigned Krause's Furniture, Inc., a Delaware corporation
("KFI"), parent of Krause's Custom Crafted Furniture Corp. ("Krause's"), in
consideration of Congress Financial Corporation (Western) ("Congress") continued
extension of credit to Krause's and Castro Convertible Corporation, hereby
consents to the foregoing Ninth Amendment to Loan and Security Agreement (the
"Amendment") and acknowledges and confirms that its Guarantee dated November 25,
1996 (the "Guarantee") in favor of Congress remains in full force and effect.

        KFI further acknowledges and confirms that the "Junior Debt", as defined
in that certain Amended and Restated Subordination Agreement dated as of August
23, 1999 between KFI and Congress (the "Subordination Agreement"), includes
(without limitation) any additional indebtedness to KFI permitted by the
foregoing Amendment, that the "Junior Debt Documents", as defined in the
Subordination Agreement, includes (without limitation) any notes, instruments
agreements or other documents evidencing or relating to such additional
indebtedness and that such additional indebtedness shall in all respects be
subject to the terms and conditions of the Subordination Agreement.

        Although Congress has informed KFI of the matters set forth above, and
KFI has acknowledged the same, KFI understands and agrees that Congress has no
duty under the Loan Agreement as defined above, the Guarantee or any other
agreement with KFI to so notify KFI or to seek such an acknowledgment, and
nothing contained herein is intended to or shall create such a duty as to any
advances or transactions hereafter.


Dated: March 31, 2000                       KRAUSE'S FURNITURE, INC.,
                                                   a Delaware corporation



By:
   -----------------------------------------------------------------------------
                                                   By:  /s/ Robert A. Burton
                                                      --------------------------
                                                   Name:   Robert A. Burton
                                                         -----------------------
                                                   Title:   Exec. V.P./ CFO
                                                          ----------------------
                                                   Name:
                                                         -----------------------
                                                   Title:
                                                          ----------------------




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