<PAGE>
                                                                   EXHIBIT 10.26


[FROST NATIONAL BANK LOGO]


                                 LOAN AGREEMENT



                                     BETWEEN

CRAFTMADE INTERNATIONAL, INC.                    THE FROST NATIONAL BANK
650 S. Royal Lane                      and       100 W. Houston Street
Coppell, Texas 75019                             San Antonio, Texas 78205


                                November 6, 2001


     THIS LOAN AGREEMENT (the "Loan Agreement") will serve to set forth the
terms of the financing transactions by and between CRAFTMADE INTERNATIONAL,
INC., a Delaware corporation ("Borrower"), and THE FROST NATIONAL BANK, a
national banking association ("Lender"):

         1. Credit Facilities;Interest Rate Options. Subject to the terms and
conditions set forth in this Loan Agreement and the agreements, instruments and
documents evidencing, securing, governing, guaranteeing and/or pertaining to the
Loans, as hereinafter defined (collectively, together with the Loan Agreement,
referred to hereinafter as the "Loan Documents"), Lender hereby agrees to
provide to Borrower the credit facility or facilities hereinbelow (whether one
or more, the "Credit Facilities"):

                  (a) Borrowing Base Line of Credit. Subject to the terms and
         conditions set forth herein, Lender agrees to lend to Borrower, on a
         revolving basis from time to time during the period commencing on the
         date hereof and continuing through the maturity date of the promissory
         note evidencing this Credit Facility from time to time, such amounts as
         Borrower may request hereunder; provided, however, the total principal
         amount outstanding at any time shall not exceed the lesser of (i) an
         amount equal to the Borrowing Base (as such term is defined
         hereinbelow), or (ii) $20,000,000.00 (the "Borrowing Base Line of
         Credit"). If at any time the aggregate principal amount outstanding
         under the Borrowing Base Line of Credit shall exceed an amount equal to
         the Borrowing Base, Borrower agrees to immediately repay to Lender such
         excess amount, plus all accrued but unpaid interest thereon. Subject to
         the terms and conditions hereof, Borrower may borrow, repay and
         reborrow hereunder. The sums Advanced under the Borrowing Base Line of
         Credit shall be used for working capital.

         As used in this Loan Agreement, the term "Borrowing Base" shall have
         the meaning set forth hereinbelow:



<PAGE>

         An amount equal to 80% of the Borrower's Eligible Accounts, plus 55% of
         the Borrower's Eligible Inventory; provided, however, the outstanding
         amount Advanced against Eligible Inventory at any time shall not exceed
         50% of total outstanding Advances (herein so called) under the
         Borrowing Base Line of Credit (as hereinafter defined).

         As used herein, the term "Eligible Accounts" shall mean at any time, an
         amount equal to the aggregate net invoice or ledger amount owing on all
         trade accounts receivable of Borrower and any Affiliates for goods sold
         or leased or services rendered in the ordinary course of business, in
         which the Lender has a perfected, first priority lien, after deducting
         (without duplication): (i) each such account that is unpaid 60 days or
         more after the original invoice date thereof, (ii) the amount of all
         discounts, allowances, rebates, credits and adjustments to such
         accounts (iii) the amount of all contra accounts, setoffs, defenses or
         counterclaims asserted by or available to the account debtors, (iv) all
         accounts with respect to which goods are placed on consignment or
         subject to a guaranteed sale or other terms by reason of which payment
         by the account debtor may be conditional, (v) all accounts with respect
         to which a payment and/or performance bond has been furnished and that
         portion of any account for or representing retainage, if any, until all
         prerequisites to the immediate payment of retainage have been
         satisfied, (vi) all accounts owing by account debtors for which there
         has been instituted a proceeding in bankruptcy or reorganization under
         the United States Bankruptcy Code or other law, whether state or
         federal, now or hereafter existing for relief of debtors, (vii) all
         accounts owing by any Affiliates; (viii) all accounts in which the
         account debtor is the United States or any department, agency or
         instrumentality of the United States, except to the extent an
         acknowledgment of assignment to Lender of such account in compliance
         with the Federal Assignment of Claims Act and other applicable laws has
         been received by Lender, (ix) all accounts due by any account debtor
         whose principal place of business is located outside the United States
         of America and its territories, (x) all accounts subject to any
         provision prohibiting assignment or requiring notice of or consent to
         such assignment, (xi) that portion of all account balances owing by any
         single account debtor which exceeds 25.0% of the aggregate of all
         accounts otherwise deemed eligible hereunder which are owing by all
         account debtors, and (xii) any other accounts deemed unacceptable by
         Lender in its sole and absolute discretion; provided, however, if more
         than 20% of the then balance owing by any single account debtor does
         not qualify as an Eligible Account under the foregoing provisions, then
         the aggregate amount of all accounts owing by such account debtor shall
         be excluded from Eligible Accounts.

         As used herein, the term "Eligible Inventory" shall mean as of any
         date, the aggregate value of all inventory of raw materials and
         finished goods (excluding work in progress and packaging materials,
         supplies and any advertising costs capitalized into inventory) then
         owned by Borrower and any Affiliates and held for sale, lease or other
         disposition in the ordinary course of its business, in which Lender has
         a first priority lien, excluding (i) inventory which is damaged,
         defective, obsolete or otherwise unsaleable in the ordinary course of
         business, (ii) inventory which has been returned or rejected, and (iii)
         inventory subject to any consignment arrangement with any other person
         or entity. For purposes of



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<PAGE>

         this definition, Eligible Inventory shall be valued at the lower of
         cost (excluding the cost of labor) or market value.

         All Advances under the Credit Facilities shall be collectively called
         the "Loans". Lender reserves the right to require Borrower to give
         Lender not less than one (1) business day prior notice of each
         requested Advance under the Credit Facilities, specifying (i) the
         aggregate amount of such requested Advance, (ii) the requested date of
         such Advance, and (iii) the purpose of such Advance, with such Advances
         to be requested in a form satisfactory to Lender.

                  (b) Interest Rate Options. The interest to be paid by Borrower
         and collected by Lender on each Advance shall be at one of the
         following rates as requested by Borrower:

                           (i) The lesser of (x) a rate equal to the Prime Rate
                  (defined below), minus one half percent (0.5%) per annum, with
                  said rate to be adjusted to reflect any change in said Prime
                  Rate at the time of any such change, or (y) the highest rate
                  permitted by applicable law, but in no event shall interest
                  contracted for, charged or received hereunder plus any other
                  charges in connection herewith which constitute interest
                  exceed the maximum interest permitted by applicable law, said
                  rate to be effective prior to maturity (however such maturity
                  is brought about) ("Prime Rate Option"). The "Prime Rate"
                  shall mean the prime rate of interest quoted in the Wall
                  Street Journal (Southwest Edition) in the "Money Rates" column
                  from time to time. The Prime Rate is a reference rate and does
                  not necessarily represent the lowest or best rate actually
                  charged to any customer.

                           (ii) The lesser of (x) a rate equal to the London
                  Interbank Offered Rate (as defined below) plus the following
                  percentage based on Borrower's "Debt to Worth Ratio" set forth
                  in Paragraph 9(a) below:

<Table>
<Caption>
                          Percentage                 Debt to Worth Ratio
                          ----------                 -------------------
<S>                                                  <C>
                             2.25%                        >2.5 to 1.0
                             1.75%                   = to or <2.5 to 1.0
                             1.50%                   = to or <2.0 to 1.0
</Table>

                  as adjusted provided below, or (y) the highest rate permitted
                  by applicable law, but in no event shall interest exceed the
                  maximum interest permitted by law ("Libor Rate Option").

                  As used herein, the "London Interbank Offered Rate" shall mean
                  with respect to any Interest Period (defined below), the rate
                  of interest per annum (rounded to the nearest 1/16 of 1%--and
                  if the rate is equidistant to the lower and higher nearest
                  1/16 of 1%, rounded upwards to the nearest 1/16 of 1%) quoted
                  in U.S. Dollars by the British Bankers' Association at
                  approximately 11:00 a.m. London time on the



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<PAGE>

                  first day of such Interest Period on which deposits in
                  immediately available funds are offered to first class banks
                  in the interbank eurodollar market (as determined by Lender in
                  its sole discretion), such deposits being for a period of time
                  equal or comparable to the interest period selected by
                  Borrower during which the rate will be applicable, which shall
                  be either one (1) month, two (2) months or three (3) months as
                  selected by Borrower ("Interest Period"), and in amounts equal
                  to or comparable to the amount of the Advance. In the event
                  that the London Interbank Offered Rate is no longer published
                  or reported as specified above, then the Lender shall use the
                  rate of interest published in The Wall Street Journal
                  (Southwest Edition) in the "Money Rates" section as the
                  "London Interbank Offered Rates (LIBOR)" for a period of time
                  equal or comparable to the applicable Interest Period, as of
                  five Business Days preceding the date of the Advance. Each
                  determination by Lender of the London Interbank Offered Rate
                  shall be conclusive and binding, absent manifest error, and
                  may be computed using any reasonable averaging and attribution
                  method.

                  (c) Request for Advances; Rollover Periods. Each request for
         an Advance shall be made to Lender in writing, specifying the amount of
         the requested Advance, the Interest Rate Option and, if applicable, the
         Interest Period as permitted under this Section. A request for an
         Advance must be delivered to the Lender at least two (2) business days
         prior to the Advance being made if it is for a Libor Rate Option. Any
         Advances with a Libor Rate Option must be for a minimum of $100,000.00.
         Any request for an Advance received after 11:00 a.m. Fort Worth time
         shall be considered received by the Lender on the following business
         day. As to any outstanding Advances, Borrower shall notify Lender of
         the Interest Rate Option and length of the Interest Period to be
         applied to the upcoming Interest Period at least two (2) business days
         prior to the end of the Interest Period then in effect for a Libor Rate
         Option. If Borrower fails to notify the Lender of its election prior to
         the end of an Interest Period for any Advance, Borrower will be deemed
         to have elected the Prime Rate Option. Any request for an Advance shall
         be irrevocable by Borrower, and Borrower shall indemnify Lender against
         any cost, loss or expense incurred by Lender as a result of Borrower
         failing to fulfill the conditions for borrowing, including the cost of
         liquidating and re-employment of deposits or other funds to make the
         Advance. The specific interest rate available on any request by
         Borrower shall be the one quoted by Lender two (2) business days prior
         to the date the rate will go into effect for the Libor Rate Option. As
         used in this Loan Agreement, a "business day" shall mean a day on which
         business is transacted by national banks in Fort Worth, Texas.

                  (d) Increased Cost. If any governmental agency, court, central
         bank or comparable authority shall impose any taxation, required level
         of reserves (except reserve requirements for certificates of deposit),
         deposits, insurance or capital, or similar requirements against assets,
         deposits or credit extended by Lender or shall impose on Lender or the
         eurodollar market any other condition affecting Advances, and the
         result of the foregoing is to increase the cost of Lender making or
         maintaining Advances or reduce any sums received or receivable by
         Lender under this Loan Agreement or the Notes by a material amount as
         determined by Lender in its sole discretion, then Borrower shall



                                       4
<PAGE>

         reimburse Lender for such increased costs or reduced sums upon demand.
         Nothing herein will be construed to require Borrower to pay any
         interest, fees, costs or charges greater than the highest rate
         permitted by law.

         2. Promissory Notes. The Loans shall be evidenced by one or more
promissory notes (whether one or more, together with any renewals, extensions
and increases thereof, the "Notes") duly executed by Borrower and payable to the
order of Lender, in form and substance acceptable to Lender. Interest on the
Notes shall accrue at the rate set forth herein. The principal of and interest
on the Notes shall be due and payable in accordance with the terms and
conditions set forth in the Notes and in this Loan Agreement.

         3. Collateral. As collateral and security for the indebtedness
evidenced by the Notes and any and all other indebtedness or obligations from
time to time owing by Borrower to Lender, Borrower, Trade Source International,
Inc., Durocraft International, Inc. and Design Trends, LLC (together hereinafter
referred to as "Pledgors") shall grant, and hereby grants, to Lender, its
successors and assigns, a first and prior lien and security interest in and to
the property described hereinbelow, together with any and all PRODUCTS AND
PROCEEDS thereof (the "Collateral"):

                  (a) All present and future accounts, (including any right to
         payment for goods sold or services rendered arising out of the sale or
         delivery of personal property or work done or labor performed by
         Pledgors), now or hereafter owned, held, or acquired by Borrower and
         its Affiliates (as hereinafter defined), together with any and all
         books of account, customer lists and other records relating in any way
         to the foregoing.

                  (b) All present and hereafter acquired inventory (including
         without limitation, all raw materials, work in process and finished
         goods) held, possessed, owned, held on consignment, or held for sale,
         lease, return or to be furnished under contracts of service, in whole
         or in part, by Pledgors wherever located.

The term "Collateral" shall also include all records and data relating to any of
the foregoing (including, without limitation, any computer software on which
such records and data may be located). Pledgors shall execute such security
agreements, assignments, deeds of trust and other agreements and documents as
Lender shall deem appropriate and otherwise require from time to time to more
fully create and perfect Lender's lien and security interests in the Collateral.

         4. Guarantors. As a condition precedent to the Lender's obligation to
make the Loans to Borrower, Borrower agrees to cause Trade Source International,
Inc., Durocraft International, Inc., Design Trends, LLC and C/D/R/ Incorporated
(whether one or more, the "Guarantors") to each execute and deliver to Lender
contemporaneously herewith a guaranty agreement, in form and substance
satisfactory to Lender.

         5. Representations and Warranties. Borrower hereby represents and
warrants, and upon each request for an Advance under the Credit Facilities
further represents and warrants, to Lender as follows:



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<PAGE>

                  (a) Existence. Borrower is a corporation duly organized,
         validly existing and in good standing under the laws of the State of
         Delaware and all other states where it is doing business, and has all
         requisite power and authority to execute and deliver the Loan
         Documents.

                  (b) Binding Obligations. The execution, delivery, and
         performance of this Loan Agreement and all of the other Loan Documents
         by Borrower have been duly authorized by all necessary action by
         Borrower, and constitute legal, valid and binding obligations of
         Borrower, enforceable in accordance with their respective terms, except
         as limited by Bankruptcy, insolvency or similar laws of general
         application relating to the enforcement of creditors' rights and except
         to the extent specific remedies may generally be limited by equitable
         principles.

                  (c) No Consent. The execution, delivery and performance of
         this Loan Agreement and the other Loan Documents, and the consummation
         of the transactions contemplated hereby and thereby, do not (i)
         conflict with, result in a violation of, or constitute a default under
         (A) any provision of its articles or certificate of incorporation or
         bylaws, if Borrower is a corporation, or its partnership agreement, if
         Borrower is a partnership, or any agreement or other instrument binding
         upon Borrower, or (B) any law, governmental regulation, court decree or
         order applicable to Borrower, or (ii) require the consent, approval or
         authorization of any third party.

                  (d) Financial Condition. Each financial statement of Borrower
         supplied to the Lender truly discloses and fairly presents Borrower's
         financial condition as of the date of each such statement. There has
         been no material adverse change in such financial condition or results
         of operations of Borrower subsequent to the date of the most recent
         financial statement supplied to Lender.

                  (e) Litigation. There are no actions, suits or proceedings,
         pending or, to the knowledge of Borrower, threatened against or
         affecting Borrower or the properties of Borrower, before any court or
         governmental department, commission or board, which, if determined
         adversely to Borrower, would have a material adverse effect on the
         financial condition, properties, or operations of Borrower.

                  (f) Taxes; Governmental Charges. Borrower has filed all
         federal, state and local tax reports and returns required by any law or
         regulation to be filed by it and has either duly paid all taxes, duties
         and charges indicated due on the basis of such returns and reports, or
         made adequate provision for the payment thereof, and the assessment of
         any material amount of additional taxes in excess of those paid and
         reported is not reasonably expected.

         6. Conditions Precedent to Advances. Lender's obligation to make any
Advance under this Loan Agreement and the other Loan Documents shall be subject
to the conditions precedent that, as of the date of such Advance and after
giving effect thereto (i) all representations and warranties made to Lender in
this Loan Agreement and the other Loan



                                       6
<PAGE>

Documents shall be true and correct, as of and as if made on such date, (ii) no
material adverse change in the financial condition of Borrower since the
effective date of the most recent financial statements furnished to Lender by
Borrower shall have occurred and be continuing, (iii) no event has occurred and
is continuing, or would result from the requested Advance, which with notice or
lapse of time, or both, would constitute an Event of Default (as hereinafter
defined), and (iv) Lender's receipt of all Loan Documents appropriately executed
by Borrower and all other proper parties.

         7. Affirmative Covenants. Until (i) the Notes and all other obligations
and liabilities of Borrower under this Loan Agreement and the other Loan
Documents are fully paid and satisfied, and (ii) the Lender has no further
commitment to lend hereunder, Borrower agrees and covenants that it will, unless
Lender shall otherwise consent in writing:

                  (a) Accounts and Records. Maintain its books and records in
         accordance with generally accepted accounting principles.

                  (b) Right of Inspection. Permit Lender to visit its properties
         and installations and to examine, audit and make and take away copies
         or reproductions of Borrower's books and records, at all reasonable
         times.

                  (c) Right to Additional Information. Furnish Lender with such
         additional information and statements, lists of assets and liabilities,
         tax returns, and other reports with respect to Borrower's financial
         condition and business operations as Lender may request from time to
         time.

                  (d) Compliance with Laws. Conduct its business in an orderly
         and efficient manner consistent with good business practices, and
         perform and comply with all statutes, rules, regulations and/or
         ordinances imposed by any governmental unit upon Borrower and its
         businesses, operations and properties (including without limitation,
         all applicable environmental statutes, rules, regulations and
         ordinances).

                  (e) Taxes. Pay and discharge when due all of its indebtedness
         and obligations, including without limitation, all assessments, taxes,
         governmental charges, levies and liens, of every kind and nature,
         imposed upon Borrower or its properties, income, or profits, prior to
         the date on which penalties would attach, and all lawful claims that,
         if unpaid, might become a lien or charge upon any of Borrower's
         properties, income, or profits; provided, however, Borrower will not be
         required to pay and discharge any such assessment, tax, charge, levy,
         lien or claim so long as (i) the legality of the same shall be
         contested in good faith by appropriate judicial, administrative or
         other legal proceedings, and (ii) Borrower shall have established on
         its books adequate reserves with respect to such contested assessment,
         tax, charge, levy, lien or claim in accordance with generally accepted
         accounting principles, consistently applied.



                                       7
<PAGE>

                  (f) Insurance. Maintain insurance, including but not limited
         to, fire insurance, comprehensive property damage, public liability,
         worker's compensation, business interruption and other insurance deemed
         necessary or otherwise required by Lender.

                  (g) Notice of Indebtedness. Promptly inform Lender of the
         creation, incurrence or assumption by Borrower of any actual or
         contingent liabilities not permitted under this Loan Agreement.

                  (h) Notice of Litigation. Promptly after the commencement
         thereof, notify Lender of all actions, suits and proceedings before any
         court or any governmental department, commission or board affecting
         Borrower or any of its properties.

                  (i) Notice of Material Adverse Change. Promptly inform Lender
         of (i) any and all material adverse changes in Borrower's financial
         condition, and (ii) all claims made against Borrower which could
         materially affect the financial condition of Borrower.

                  (j) Additional Documentation. Execute and deliver, or cause to
         be executed and delivered, any and all other agreements, instruments or
         documents which Lender may reasonably request in order to give effect
         to the transactions contemplated under this Loan Agreement and the
         other Loan Documents.

         8. Negative Covenants. Until (i) the Notes and all other obligations
and liabilities of Borrower under this Loan Agreement and the other Loan
Documents are fully paid and satisfied, and (ii) the Lender has no further
commitment to lend hereunder, Borrower will not, without the prior written
consent of Lender:

                  (a) Nature of Business. Make any material change in the nature
         of its business as carried on as of the date hereof.

                  (b) Liquidations, Mergers, Consolidations. Liquidate, merge or
         consolidate with or into any other entity.

                  (c) Sale of Assets. Sell, transfer or otherwise dispose of any
         of its assets or properties, other than in the ordinary course of
         business.

                  (d) Liens. Create or incur any lien or encumbrance on any of
         its assets, other than (i) liens and security interests securing
         indebtedness owing to Lender, (ii) liens for taxes, assessments or
         similar charges that are (1) not yet due or (2) being contested in good
         faith by appropriate proceedings and for which Borrower has established
         adequate reserves, (iii) liens and security interests existing as of
         the date hereof which have been disclosed to and approved by Lender in
         writing, and (iv) purchase money security interests covering assets
         other than the Collateral incurred in the normal course of business.



                                       8
<PAGE>

                  (e) Indebtedness. Create, incur or assume any indebtedness for
         borrowed money or issue or assume any other note, debenture, bond or
         other evidences of indebtedness, or guarantee any such indebtedness or
         such evidences of indebtedness of others, other than (i) borrowings
         from Lender, (ii) borrowings outstanding on the date hereof and
         disclosed in writing to Lender, and (iii) borrowings representing trade
         debt incurred in the normal course of business.

                  (f) Change in Management. Permit a change in the senior
         management of Borrower.

                  (g) Loans. Make any loans to any person or entity except for
         (i) loans to Affiliates, and (ii) loans to officers and directors of
         Borrower not to exceed $100,000.00 in the aggregate at any one time.

                  (h) Transactions with Affiliates. Enter into any transaction,
         including, without limitation, the purchase, sale or exchange of
         property or the rendering of any service, with any Affiliate (as
         hereinafter defined) of Borrower, except in the ordinary course of and
         pursuant to the reasonable requirements of Borrower's business and upon
         fair and reasonable terms no less favorable to Borrower than would be
         obtained in a comparable arm's-length transaction with a person or
         entity not an Affiliate of Borrower. As used in this Loan Agreement,
         the term "Affiliate" means (i) any individual or entity directly or
         indirectly controlling, controlled by, or under common control with,
         another individual or entity, and (ii) Design Trends, LLC.

                  (i) Dividends. Borrower agrees not to declare or pay any
         dividends on any shares of Borrower's capital stock in excess of
         $1,750,000 per annum in the aggregate; however, if Borrower issues new
         shares of capital stock then dividends will not exceed $.28 per share
         per annum. Borrower further agrees not to make any other distributions
         with respect to any payment on account of the purchase, redemption, or
         other acquisition or retirement of any shares of Borrower's capital
         stock, or make any other distribution, sale, transfer or lease of any
         of Borrower's assets other than in the ordinary course of business,
         unless any such amounts are directly utilized for the payment of
         principal or interest on indebtedness and obligations owing from time
         to time by Borrower to Lender.

         9. Financial Covenants. Until (i) the Notes and all other obligations
and liabilities of Borrower under this Loan Agreement and the other Loan
Documents are fully paid and satisfied, and (ii) the Lender has no further
commitment to lend hereunder, Borrower will maintain the following financial
covenants on a consolidated basis:

                  (a) Debt to Worth Ratio. Borrower will maintain, at all times,
         a ratio of (a) total liabilities (excluding any Subordinated Debt), to
         (b) Tangible Net Worth of not greater than 3.25 to 1.0 after June 30,
         2001, and 3.0 to 1.0 beginning September 30, 2001 and thereafter,
         tested quarterly.



                                       9
<PAGE>

                  (b) Interest Coverage Ratio. Borrower will maintain, as of the
         end of each month for the twelve most recently completed months, a
         ratio of (a) earnings before interest and taxes, plus depreciation and
         amortization for such month to (b) interest expense for such month, of
         not less than 1.90 to 1.0.

                  (c) Fixed Charge Coverage Ratio. Borrower will maintain, as of
         the end of each fiscal quarter, a ratio of (a) net income after taxes,
         plus depreciation, amortization, other non-cash expenses, interest
         expense and lease expense for the four (4) most recently completed
         quarters ending with such fiscal quarter, less any Distributions during
         such four (4) quarter period, to (b) interest expense, lease expense,
         current maturities of long-term debt and current maturities of
         long-term leases and capital expenditures for such four (4) quarter
         period, of not less than 0.9 to 1.0.

As used herein, the term "Tangible Net Worth" means, as of any date, Borrower's
total assets excluding all intangible assets, less total liabilities excluding
any Subordinated Debt. As used herein, the term "Subordinated Debt" means any
indebtedness owing by Borrower which has been subordinated by written agreement
to all indebtedness now or hereafter owing by Borrower to Lender, such agreement
to be in form and substance acceptable to Lender. Unless otherwise specified,
all accounting and financial terms and covenants set forth above are to be
determined according to generally accepted accounting principles, consistently
applied.

         10. Reporting Requirements. Until (i) the Notes and all other
obligations and liabilities of Borrower under this Loan Agreement and the other
Loan Documents are fully paid and satisfied, and (ii) the Lender has no further
commitment to lend hereunder, Borrower will, unless Lender shall otherwise
consent in writing, furnish to Lender on a consolidated basis:

                  (a) Interim Financial Statements. As soon as available, and in
         any event within thirty (30) days after the end of each month of each
         fiscal year of Borrower, a balance sheet and income statement of
         Borrower as of the end of such fiscal month all in form and substance
         and in reasonable detail satisfactory to Lender and duly certified
         (subject to year-end review adjustments) by the President and/or Chief
         Financial Officer of Borrower (i) as being true and correct in all
         material aspects to the best of his or her knowledge and (ii) as having
         been prepared in accordance with generally accepted accounting
         principles, consistently applied.

                  (b) Annual Financial Statements. As soon as available and in
         any event within ninety (90) days after the end of each fiscal year of
         Borrower, a balance sheet and income statement of Borrower as of the
         end of such fiscal year, in each case audited by independent public
         accountants of recognized standing acceptable to Lender.

                  (c) Compliance Certificate. A certificate signed by the Chief
         Financial Officer of Borrower within thirty (30) days after the end of
         each month of each fiscal year, stating that Borrower is in full
         compliance with all of its obligations under this Loan Agreement and
         all other Loan Documents and is not in default of any term or
         provisions hereof or



                                       10
<PAGE>

         thereof, and demonstrating compliance with all financial ratios and
         covenants set forth in this Loan Agreement.

                  (d) Borrowing Base Report. A borrowing base report signed by
         the Chief Financial Officer of Borrower within thirty 30 days after the
         end of each month of each fiscal year, in form and detail satisfactory
         to Lender.

                  (e) Accounts Aging. An account receivable aging report within
         thirty (30) days after the end of each month of each fiscal year, in
         form and detail satisfactory to Lender.

                  (f) 10K Filings. Borrower's annual 10K filing with the
         Securities and Exchange Commission within (30) days after such filing.

                  (g) 10Q Filings. Borrower's quarterly 10Q filing with the
         Securities and Exchange Commission within 30 days after such filing.

                  (h) Additional Information. Such other additional financial
         information as Lender may request from time to time, including,
         without, limitation, operating statements on any assets listed on
         Borrower's financial statement.

         11. Events of Default. Each of the following shall constitute an "Event
of Default" under this Loan Agreement:

                  (a) The failure, refusal or neglect of Borrower to pay when
         due any part of the principal of, or interest on, the Notes or any
         other indebtedness or obligations owing to Lender by Borrower from time
         to time.

                  (b) The failure of Borrower or any Obligated Party (as defined
         below) to timely and properly observe, keep or perform any covenant,
         agreement, warranty or condition required herein or in any of the other
         Loan Documents.

                  (c) The occurrence of an event of default under any of the
         other Loan Documents or under any other agreement now existing or
         hereafter arising between Lender and Borrower.

                  (d) Any representation contained herein or in any of the other
         Loan Documents made by Borrower or any Obligated Party is false or
         misleading in any material respect.

                  (e) The occurrence of any event which permits the acceleration
         of the maturity of any indebtedness owing by Borrower to any third
         party under any agreement or understanding.



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<PAGE>

                  (f) If Borrower or any Obligated Party: (i) becomes insolvent,
         or makes a transfer in fraud of creditors, or makes an assignment for
         the benefit of creditors, or admits in writing its inability to pay its
         debts as they become due; (ii) generally is not paying its debts as
         such debts become due; (iii) has a receiver, trustee or custodian
         appointed for, or take possession of, all or substantially all of the
         assets of such party, either in a proceeding brought by such party or
         in a proceeding brought against such party and such appointment is not
         discharged or such possession is not terminated within sixty (60) days
         after the effective date thereof or such party consents to or
         acquiesces in such appointment or possession; (iv) files a petition for
         relief under the United States Bankruptcy Code or any other present or
         future federal or state insolvency, bankruptcy or similar laws (all of
         the foregoing hereinafter collectively called "Applicable Bankruptcy
         Law") or an involuntary petition for relief is filed against such party
         under any Applicable Bankruptcy Law and such involuntary petition is
         not dismissed within sixty (60) days after the filing thereof, or an
         order for relief naming such party is entered under any Applicable
         Bankruptcy Law, or any composition, rearrangement, extension,
         reorganization or other relief of debtors now or hereafter existing is
         requested or consented to by such party; (v) fails to have discharged
         within a period of thirty (30) days any attachment, sequestration or
         similar writ levied upon any property of such party; or (vi) fails to
         pay within thirty (30) days any final money judgment against such
         party.

                  (g) If Borrower or any Obligated Party is an entity, the
         liquidation, dissolution, merger or consolidation of any such entity
         or, if Borrower or any Obligated Party is an individual, the death or
         legal incapacity of any such individual.

                  (h) The entry of any judgment against Borrower or the issuance
         or entry of any attachment or other lien against any of the property of
         Borrower for an amount in excess of $250,00.00, if undischarged,
         unbonded or undismissed within thirty (30) days after such entry.

Nothing contained in this Loan Agreement shall be construed to limit the events
of default enumerated in any of the other Loan Documents and all such events of
default shall be cumulative. The term "Obligated Party", as used herein, shall
mean any party other than Borrower who secures, guarantees and/or is otherwise
obligated to pay all or any portion of the indebtedness evidenced by the Notes.

         12. Remedies. Upon the occurrence of any one or more of the foregoing
Events of Default, and upon the expiration of ten (10) days following the giving
of notice in accordance with Section 16 hereof with respect to any Event of
Default described in subparagraph 11(a) above (provided, however, that no more
than two (2) such notices will be given during any calendar year) or upon the
expiration of thirty (30) days following the giving of notice by Lender to
Borrower in accordance with Section 16 hereof, with respect to any Event of
Default described in any of subparagraphs 11(b) through (e), the entire unpaid
balance of principal of the Notes, together with all accrued but unpaid interest
thereon, and all other indebtedness owing to Lender



                                       12
<PAGE>

by Borrower at such time shall, at the option of Lender, become immediately due
and payable without further notice, demand, presentation, notice of dishonor,
notice of intent to accelerate, notice of acceleration, protest or notice of
protest of any kind, all of which are expressly waived by Borrower, and (b)
Lender may, at its option, cease further advances under any of the Notes. All
rights and remedies of Lender set forth in this Loan Agreement and in any of the
other Loan Documents may also be exercised by Lender, at its option to be
exercised in its sole discretion, upon the occurrence of an Event of Default.

         13. Rights Cumulative. All rights of Lender under the terms of this
Loan Agreement shall be cumulative of, and in addition to, the rights of Lender
under any and all other agreements between Borrower and Lender (including, but
not limited to, the other Loan Documents), and not in substitution or diminution
of any rights now or hereafter held by Lender under the terms of any other
agreement.

         14. Waiver and Agreement. Neither the failure nor any delay on the part
of Lender to exercise any right, power or privilege herein or under any of the
other Loan Documents shall operate as a waiver thereof, nor shall any single or
partial exercise of such right, power or privilege preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. No
waiver of any provision in this Loan Agreement or in any of the other Loan
Documents and no departure by Borrower therefrom shall be effective unless the
same shall be in writing and signed by Lender, and then shall be effective only
in the specific instance and for the purpose for which given and to the extent
specified in such writing. No modification or amendment to this Loan Agreement
or to any of the other Loan Documents shall be valid or effective unless the
same is signed by the party against whom it is sought to be enforced.

         15. Benefits. This Loan Agreement shall be binding upon and inure to
the benefit of Lender and Borrower, and their respective successors and assigns,
provided, however, that Borrower may not, without the prior written consent of
Lender, assign any rights, powers, duties or obligations under this Loan
Agreement or any of the other Loan Documents.

         16. Notices. All notices, requests, demands or other communications
required or permitted to be given pursuant to this Agreement shall be in writing
and given by (i) personal delivery, (ii) expedited delivery service with proof
of delivery, or (iii) United States mail, postage prepaid, registered or
certified mail, return receipt requested, sent to the intended addressee at the
address set forth on the first page hereof and shall be deemed to have been
received either, in the case of personal delivery, as of the time of personal
delivery, in the case of expedited delivery service, as of the date of first
attempted delivery at the address and in the manner provided herein, or in the
case of mail, upon deposit in a depository receptacle under the care and custody
of the United States Postal Service. Either party shall have the right to change
its address for notice hereunder to any other location within the continental
United States by notice to the other party of such new address at least thirty
(30) days prior to the effective date of such new address.

         17. Construction, Venue. This Loan Agreement and the other Loan
Documents have been executed and delivered in the State of Texas, shall be
governed by and construed in



                                       13
<PAGE>

accordance with the laws of the State of Texas, and shall be performable by the
parties hereto in the county in Texas where the Lender's address set forth on
the first page hereof is located. In the event of a dispute involving this Loan
Agreement or any other instruments executed in connection herewith, the
undersigned irrevocably agrees that venue for such dispute shall lie in any
court of competent jurisdiction in Tarrant County, Texas

         18. Invalid Provisions. If any provision of this Loan Agreement or any
of the other Loan Documents is held to be illegal, invalid or unenforceable
under present or future laws, such provision shall be fully severable and the
remaining provisions of this Loan Agreement or any of the other Loan Documents
shall remain in full force and effect and shall not be affected by the illegal,
invalid or unenforceable provision or by its severance.

         19. Expenses. Borrower shall pay all costs and expenses (including,
without limitation, reasonable attorneys' fees) in connection with (i) any
action required in the course of administration of the indebtedness and
obligations evidenced by the Loan Documents, and (ii) any action in the
enforcement of Lender's rights upon the occurrence of Event of Default.

         20. Participation of the Loans. Borrower agrees that Lender may, at its
option, sell interests in the Loans and its rights under this Loan Agreement to
a financial institution or institutions and, in connection with each such sale,
Lender may disclose any financial and other information available to Lender
concerning Borrower to each prospective purchaser.

         21. Conflicts. In the event any term or provision hereof is
inconsistent with or conflicts with any provision of the other Loan Documents,
the terms and provisions contained in this Loan Agreement shall be controlling.

         22. Counterparts. This Loan Agreement may be separately executed in any
number of counterparts, each of which shall be an original, but all of which,
taken together, shall be deemed to constitute one and the same instrument.

         23. Facsimile Documents and Signatures. For purposes of negotiating and
finalizing this Loan Agreement, if this document or any document executed in
connection with it is transmitted by facsimile machine ("fax"), it shall be
treated for all purposes as an original document. Additionally, the signature of
any party on this document transmitted by way of a facsimile machine shall be
considered for all purposes as an original signature. Any such faxed document
shall be considered to have the same binding legal effect as an original
document. At the request of any party, any faxed document shall be re-executed
by each signatory party in an original form.

If the foregoing correctly sets forth our mutual agreement, please so
acknowledge by signing and returning this Loan Agreement to the undersigned.



                                       14
<PAGE>

                         NOTICE TO COMPLY WITH STATE LAW

For the purpose of this Notice, the term "WRITTEN AGREEMENT" shall include the
document set forth above, together with each and every other document relating
to and/or securing the same loan transaction, regardless of the date of
execution.

     THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES
     AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
     SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.

THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.



BORROWER                                         LENDER:

CRAFTMADE INTERNATIONAL, INC., a                 THE FROST NATIONAL BANK,
Delaware corporation                             a national banking


By: /s/ James R. Ridings                         By: /s/ D. Michael Randall
    --------------------                             ----------------------
Name: James R. Ridings                           Name: D. Michael Randall
Title: President and CEO                         Title: Senior Vice President



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