Exhibit 10.1

                 AMENDMENT NO. 1 TO LOAN AND SECURITY AGREEMENT

     AMENDMENT NO. 1 TO LOAN AND SECURITY AGREEMENT (this "Amendment"), dated as
of July 26, 2005, is entered into by and among Hancock Fabrics, Inc., a Delaware
corporation   ("Parent"),   HF  Merchandising,   Inc.,  a  Delaware  corporation
("Merchandising"), Hancock Fabrics of MI, Inc., a Delaware corporation ("Fabrics
MI"), hancockfabrics.com,  Inc., a Delaware corporation ("Fabrics.com"), Hancock
Fabrics,  LLC, a Delaware limited liability company ("Fabrics LLC", and together
with Parent,  Merchandising,  Fabrics MI and  Fabrics.com,  each  individually a
"Borrower" and  collectively,  "Borrowers"),  HF  Enterprises,  Inc., a Delaware
corporation   ("Enterprises"),   HF  Resources,  Inc.,  a  Delaware  corporation
("Resources", and together with Enterprises, each individually a "Guarantor" and
collectively,  "Guarantors"), the financial institutions from time to time party
to the Loan Agreement (as hereinafter defined) as lenders (each individually,  a
"Lender" and collectively,  "Lenders"), and Wachovia Bank, National Association,
a  national  banking  association,  as agent  for  Lenders  (in  such  capacity,
"Agent").

                               W I T N E S S E T H

     WHEREAS,  Agent and Lenders have entered into financing  arrangements  with
Borrowers and  Guarantors  pursuant to which Agent and Lenders have made and may
make loans and advances and provide other financial  accommodations to Borrowers
as set forth in the Loan and Security  Agreement,  dated June 29,  2005,  by and
among Agent,  Lenders,  Borrowers and  Guarantors (as the same now exists or may
hereafter be amended,  modified,  supplemented,  extended,  renewed, restated or
replaced, the "Loan Agreement") and other agreements,  documents and instruments
referred  to therein or at any time  executed  and/or  delivered  in  connection
therewith  or  related  thereto,  together  with  this  Amendment  (all  of  the
foregoing,  including the Loan Agreement, as the same now exist or may hereafter
be amended,  modified,  supplemented,  extended,  renewed, restated or replaced,
being collectively referred to herein as the "Financing Agreements");

     WHEREAS,  Borrowers and  Guarantors  have  requested that Agent and Lenders
make certain amendments to the Loan Agreement, and Agent and Lenders are willing
to agree to such  amendments,  subject  to the  terms and  conditions  contained
herein; and

     WHEREAS, the parties hereto desire to enter into this Amendment to evidence
and effectuate such  amendments,  subject to the terms and conditions and to the
extent set forth herein;

     NOW  THEREFORE,  in  consideration  of the  foregoing,  and the  respective
agreements and covenants contained herein, the parties hereto agree as follows:

     1. Definitions.

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     (a)  Amendments  to  Definition  of Specified  Amount.  The  definition  of
"Specified  Amount" set forth in Section  1.121 of the Loan  Agreement is hereby
amended by deleting  each  reference to "Agent" and replacing it with "Agent and
each Lender".

     (b)  Interpretation.  All  capitalized  terms  used  herein  shall have the
meanings  assigned  thereto  in the  Loan  Agreement  and  the  other  Financing
Agreements, unless otherwise defined herein.

     2.  Conditions  Precedent.  The  effectiveness  of the terms and provisions
contained herein shall be subject to the following conditions precedent:

     (a) Agent shall have received, in form and substance satisfactory to Agent,
an original of this  Amendment,  duly  authorized,  executed  and  delivered  by
Borrowers, Guarantors and Lenders; and

     (b) as of the date  hereof,  no Default or Event of Default  shall exist or
have occurred and be continuing.

     3. Representations, Warranties and Covenants. In addition to the continuing
representations,  warranties  and  covenants  heretofore  or  hereafter  made by
Borrowers and  Guarantors to Agent and Lenders  pursuant to the other  Financing
Agreements, Borrowers and Guarantors hereby represent, warrant and covenant with
and to Agent and  Lenders  as follows  (which  representations,  warranties  and
covenants are continuing and shall survive the execution and delivery hereof and
shall be incorporated into and made a part of the Financing Agreements):

     (a) This  Amendment  has been duly  executed and delivered by Borrowers and
Guarantors  and is in full  force  and  effect  as of the date  hereof,  and the
agreements  and  obligations  of  Borrowers  and  Guarantors   contained  herein
constitute  legal,  valid and binding  obligations  of Borrowers and  Guarantors
enforceable against Borrowers and Guarantors in accordance with their respective
terms.

     (b) As of the date  hereof,  no Default or Event of Default has occurred or
is continuing.

     4. Effect of this Agreement.  Except as modified  pursuant hereto, no other
changes or modifications to the Loan Agreement or the other Financing Agreements
are intended or implied and in all other  respects the Financing  Agreements are
hereby  specifically  ratified  and  confirmed  by the parties  hereto as of the
effective  date hereof.  This  Amendment  represents  the entire  agreement  and
understanding  concerning the subject matter hereof between the parties  hereto,
and  supersedes all other prior  agreements,  understandings,  negotiations  and
discussions,  representations,  warranties,  commitments,  proposals, offers and
contracts concerning the subject matter hereof,  whether oral or written. To the
extent  of any  conflict  between  the  terms of this  Amendment  and the  other
Financing  Agreements,  the  terms of this  Amendment  shall  control.  The Loan
Agreement and this Amendment shall be read and construed as one agreement.

     5.  Governing  Law.  The rights and  obligations  hereunder  of each of the
parties hereto shall be governed by and interpreted and determined in accordance

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with the laws of the State of New York without regard to principals of conflicts
of laws,  but excluding any rule of law that would cause the  application of the
law of any jurisdiction other that the laws of the State of New York.

     6. Binding  Effect.  This Amendment  shall be binding upon and inure to the
benefit  of each of the  parties  hereto  and their  respective  successors  and
assigns.

     7. Further  Assurances.  The parties  hereto shall execute and deliver such
additional  documents  and take such  additional  action as may be  necessary or
reasonably   desirable  to  effectuate  the  provisions  and  purposes  of  this
Amendment.

     8.  Counterparts.   This  Amendment  may  be  executed  in  any  number  of
counterparts, but all of such counterparts shall together constitute but one and
the same agreement. In making proof of this Amendment, it shall not be necessary
to produce or account for more than one  counterpart  thereof  signed by each of
the parties  hereto.  This Amendment may be executed and delivered by telecopier
or other electronic  method of transmission with the same force and effect as if
it were a manually executed and delivered counterpart.

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     IN WITNESS  WHEREOF,  the  parties  have caused  these  presents to be duly
executed as of the day and year first above written.

                                        BORROWERS
                                        ---------

                                        HANCOCK FABRICS, INC.

                                        By: ___________________________

                                        Title:__________________________

                                        HF MERCHANDISING, INC.

                                        By: ___________________________

                                        Title:__________________________

                                        HANCOCK FABRICS OF MI, INC.

                                        By: ___________________________

                                        Title:__________________________

                                        HANCOCKFABRICS.COM, INC.

                                        By: ___________________________

                                        Title:__________________________

                                        HANCOCK FABRICS, LLC

                                        By: ___________________________

                                        Title:__________________________

                                        GUARANTORS
                                        ----------

                                        HF ENTERPRISES, INC.

                                        By: ___________________________

                                        Title:__________________________

                                        HF RESOURCES, INC.

                                        By: ___________________________

                                        Title:__________________________

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                                        AGENT AND LENDERS
                                        -----------------

                                        WACHOVIA BANK, NATIONAL ASSOCIATION,
                                         as Agent and as Lender

                                        By: ___________________________

                                        Title:__________________________


                                        THE CIT GROUP/BUSINESS CREDIT, INC.,
                                         as Lender

                                        By: ___________________________

                                        Title:__________________________