<PAGE>

                                                                  Exhibit 10.1.2

                       AMENDMENT NO. 2 TO LOAN AGREEMENT
                       ---------------------------------

                                                         as of November 30, 1998

CONGRESS FINANCIAL CORPORATION
 (NORTHWEST)
One Main Place
101 Southwest Main, Suite 725
Portland, Oregon 97204

Ladies and Gentlemen:

     CONGRESS FINANCIAL CORPORATION (NORTHWEST) ("Lender") and VALLEY MEDIA,
INC. ("Borrower") have entered into certain financing arrangements pursuant to
the Loan and Security Agreement dated as of May 21, 1998 by and between Lender
and Borrower (the "Loan Agreement") and all other Financing Agreements at any
time executed and/or delivered in connection therewith or related thereto.  All
capitalized terms used herein shall have the meaning assigned thereto in the
Loan Agreement, unless otherwise defined herein.

     Borrower has requested that Lender amend and modify certain provisions of
the Loan Agreement, and Lender is willing to agree to the foregoing, on and
subject to the terms and conditions contained in this Amendment No. 2 to Loan
Agreement (this "Amendment").

     In consideration of the foregoing and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
the parties hereto, the parties hereto hereby agree as follows:

     1.   The Loan Agreement is hereby amended, effective as of November 30,
1998, as follows:

     (a) Section 1.19 "Excess Availability" of the Loan Agreement is hereby
amended and restated in its entirety as follows:

          ""Excess Availability" shall mean the amount, as determined by Lender,
          calculated at any time from and after the date of this Agreement,
          equal to:  (a) the amount of the Revolving Loans available to Borrower
          as of such time (without regard to the Maximum Credit) based on the
          applicable lending formulas multiplied by the Net Amount of Eligible
          Accounts and the Value of Eligible Inventory, as determined by Lender,
          and subject to the sublimits and Availability Reserves from time to
          time established by Lender hereunder minus (b) the sum of: (i) the
                                               -----
          amount of all then outstanding and unpaid Revolving Loans and Letter
          of Credit Accommodations, plus (ii) as reflected on the accounts
          payable aging

                                       1
<PAGE>

          for the immediately preceding month end, the aggregate amount of all
          trade payables of Borrower which are more than sixty (60) days past
          due as of such time, only to the extent that such trade payables
          exceed five (5%) of all of Borrower's trade payables, excluding,
          however, trade payables in an amount not to exceed $2,000,000 incurred
          by Borrower in the ordinary course of its business in connection with
          "dollar day swap" programs maintained by Borrower from time to time
          with certain of Borrower's vendors."

     (b) Section 1.33 of the Loan Agreement is hereby amended and restated in
its entirety as follows:

               ""Maximum Credit" shall mean the amount of $200,000,000."

     (c) Section 2.1(e) of the Loan Agreement is hereby amended and restated in
its entirety as follows:

               "(e)  Notwithstanding anything to the contrary contained in
          Section 2.1(a)(ii) above, the maximum aggregate amount of Revolving
          Loans outstanding at any time (i) made in respect of the Value of
          Eligible Inventory, shall not at any time exceed (x) $35,000,000 in
          respect of Eligible Inventory consisting of Video Inventory and (y)
          $10,000,000 in respect of Eligible Inventory relating to DNA."

     (d) Section 3.1(b)(iv) of the Loan Agreement is hereby amended and restated
in its entirety as follows:

               "(iv)  no more than ten (10) Interest Periods may be in effect at
          any one time,"

     (e) Section 9.10(b)(ii)(B)(1)(x) of the Loan Agreement is hereby amended
and restated in its entirety as follows:

               "(x)  $10,000,000 on the date of such loan or advance, the
          maximum aggregate amount of all loans or advances to any Designated
          Vendor shall not exceed the aggregate amount of $2,000,000 outstanding
          at any given time,"

     2.   Amendment Fee.  In consideration of the amendments to the financing
          -------------
arrangements as set forth herein, Borrower shall pay to Lender or Lender, at its
option, may charge the account(s) of Borrower maintained by Lender (a) an
amendment fee in the amount of $200,000, which fee is fully earned and payable
as of the date hereof and shall constitute part of the Obligations and (b) in
the event that Borrower fails to receive, on or prior to April 30, 1999, net
proceeds of not less than $25,000,000 from the consummation of an Equity
Offering or an unsecured subordinated bond, debenture or note offering, then
Borrower shall pay to Lender an additional amendment fee in the amount of
$100,000, which fee shall constitute part of the Obligations and shall be fully
earned and payable on May 3, 1999.

                                       2
<PAGE>

     3.   Representations, Warranties and Covenants.  In addition to the
          -----------------------------------------
continuing representations, warranties and covenants heretofore or hereafter
made by Borrower to Lender pursuant to the Loan Agreement and the other
Financing Agreements, Borrower hereby represents, warrants and covenants with
and to Lender 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) No Event of Default exists on the date of this Amendment (after
giving effect to the amendments to the Loan Agreement made by this Amendment);
and

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

     4.   Conditions Precedent.  This Amendment shall not become effective
          --------------------
unless all of the following conditions precedent have been satisfied in full, as
determined by Lender:

          (a) the receipt by Lender of an original of this Amendment, duly
authorized, executed and delivered by Borrower;

          (b) the receipt by Lender of a Certificate of the Secretary of
Borrower, in form and substance satisfactory to Lender, certifying as to the
adoption by Borrower's Board of Directors and current effectiveness of
resolutions authorizing Borrower to enter into and execute this Amendment and to
borrow from Lender under the secured lending facility established under the Loan
Agreement, as amended hereby, the maximum aggregate principal amount of
$200,000,000; and

          (c) as of the date of this Amendment, no Event of Default shall have
occurred and be continuing and no event shall have occurred or condition be
existing and continuing which, with notice or passage of time or both, would
constitute an Event of Default.

     5.   Effect of this Amendment.  Except as modified pursuant hereto, no
          ------------------------
other changes or modifications to the Loan Agreement and the other Financing
Agreements are intended or implied and in all other respects the Loan Agreement
and the other Financing Agreements are hereby specifically ratified, restated
and confirmed by all parties hereto as of the effective date hereof.  To the
extent of any conflict between the terms of this Amendment and any of the
Financing Agreements, the terms of this Amendment shall control.  The Loan
Agreement and this Amendment shall be read and be construed as one agreement.

     6.   Further Assurances.  At Lender's request, Borrower shall execute and
          ------------------
deliver such additional documents and take such additional actions as Lender
reasonably requests to effectuate the provisions and purposes of this Amendment
and to protect and/or maintain perfection of Lender's security interests in and
liens upon the Collateral.

                                       3
<PAGE>

     7.   Governing Law.  The validity, interpretation and enforcement of this
          -------------
Amendment and any dispute arising out of the relationship between the parties
hereto, whether in contract, tort, equity or otherwise, shall be governed by the
internal laws of the State of California (without giving effect to principles of
conflicts of law).

     8.   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.

     9.   Counterparts.  This Amendment may be executed in any number of
          ------------
counterparts, but all of such counterparts when executed 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.

                                    Very truly yours,

                                    VALLEY MEDIA, INC.


                                    By:      /s/ Donald E. Rose
                                             ------------------

                                    Title:   Treasurer
                                             ---------

CONGRESS FINANCIAL CORPORATION
 (NORTHWEST)


By:      /s/ Rodney S. Davis
         -------------------

Title:   First Vice President
         --------------------

                                       4