<PAGE>

                                                                   Exhibit 10.21


                   SEVENTH AMENDMENT TO DEBTOR IN POSSESSION
                          LOAN AND SECURITY AGREEMENT
                          ---------------------------


     THIS SEVENTH AMENDMENT TO DEBTOR IN POSSESSION LOAN AND SECURITY AGREEMENT
(this "Seventh Amendment") is entered into and effective as of October 5, 2000,
by and among Factory Card Outlet of America Ltd., an Illinois corporation and a
debtor and debtor in possession (the "Borrower"), on the one hand, and Foothill
Capital Corporation, as Agent ("Foothill") and the financial institutions listed
on the signature page of the Loan Agreement referred to below (such financial
institutions, together with their respective successors and assigns, are
collectively referred to herein as the ("Lenders"), on the other hand.  This
Seventh Amendment amends certain provisions of the Debtor in Possession Loan and
Security Agreement dated as of March 23, 1999 by and among the Borrower and
Foothill, as Agent, and the Lenders (as amended by and through the date of this
Seventh Amendment, and as hereafter amended and/or restated from time to time,
the "Loan Agreement").  Capitalized terms used herein and not otherwise defined
shall have the same meanings herein as in the Loan Agreement.

                                   BACKGROUND
                                   ----------

     This Seventh Amendment is entered into to amend certain of the provisions
governing the availability of "Special Sub-Line Advances" under the Loan
Agreement, in accordance with the terms and conditions hereof.

     NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Borrower, the Agent and the
Lenders hereby agree as follows:

     1.   Amendments to Loan Agreement.

     (a)  Amendment to Subsection 2.1(a)(ii).  Subsection 2.1(a)(ii) of the Loan
Agreement is hereby by deleting such subsection in its entirety and inserting in
lieu thereof the following:

          (a)(ii) Special Sub-Line Advances. The term "Borrowing Base" shall
     also include amounts available in respect of the Special Sub-Line Advances
     in accordance with this Section 2.1(a)(ii). Subject to the terms and
     conditions of this Agreement, each Lender agrees to make special sub-line
     advances ("Special sub-Line Advances") to Borrower in an amount at any one
     time outstanding not to exceed such Lender's Pro Rata Share of an amount
     equal to 10% of the Cost value of Eligible Inventory, provided that during
     the period October 5, 2000 through and including December 5, 2000, the
     Special Sub-Line Advances to Borrower may be in an amount at any one time
     outstanding not to exceed such Lender's Pro Rata Share of an amount equal
     to 15% of the Cost value of Eligible Inventory.
<PAGE>

     2.  Representations and Warranties; Confirmation of Representations,
         Warranties.

     This Seventh Amendment has been duly authorized, executed and delivered by
the Borrower. The Loan Agreement, as amended hereby, and each of the other Loan
Documents, as amended by and through the date hereof, constitute legal, valid
and binding obligations of the Borrower, enforceable against the Borrower in
accordance with their respective terms. The Borrower, by execution of this
Seventh Amendment, certifies to the Agent and each of the Lenders that each of
the representations and warranties set forth in the Loan Agreement and the other
Loan Documents is true and correct as of the date hereof, except to the extent
such representations and warranties expressly relate to an earlier date, as if
fully set forth in this Seventh Amendment, and that, as of the date hereof, no
Default or Event of Default has occurred and is continuing under the Loan
Agreement or any other Loan Document. The Borrower acknowledges and agrees that
this Seventh Amendment shall become a part of the Loan Agreement and shall be a
Loan Document

     3.  Conditions Precedent. The obligation of the Agent and the Lenders to
execute this Seventh Amendment and make the accommodations to the Borrower
described herein is subject to the following conditions, as determined by the
Agent and the Lenders in their sole discretion:

     (a) This Seventh Amendment shall have been executed and delivered by each
of the parties hereto;

     (b) No Default or Event of Default shall have occurred under the Loan
Agreement, as amended hereby; and

     (c) The Borrower shall have paid to the Agent, for the benefit of the
Lenders, an amendment fee of $15,000 (the "Amendment Fee").  The Amendment Fee
shall be fully earned when paid and shall not be repaid to the Borrower under
any circumstances.

     4.  No Novation; Effect; Counterparts; Governing Law.

     Except to the extent specifically amended hereby, the Loan Agreement and
each of the other Loan Documents shall be unaffected hereby and shall remain in
full force and effect; this Seventh Amendment shall not be deemed a novation of
the Loan Agreement or any other Loan Document. The Borrower hereby acknowledges,
confirms and ratifies its obligations under the Loan Agreement and each of the
other Loan Documents. This Seventh Amendment may be executed in any number of
counterparts, and by the different parties on separate counterparts, each of
which, when so executed and delivered, shall be an original, but all the
counterparts shall together constitute one instrument. This Seventh Amendment
shall be governed by the internal laws of The Commonwealth of Massachusetts
(without reference to conflicts of law principles) and the United States
Bankruptcy Code and shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns. The
Borrower acknowledges that the reasonable out-of-pocket expenses of the Agent
and the Lenders incurred in connection

                                       2
<PAGE>

with the preparation, execution and delivery of this Seventh Amendment shall be
"Lender Group Expenses", as such term is defined in the Loan Agreement.

     5.  Construction.

     The Borrower, by execution hereof, acknowledges and confirms that for all
purposes of the Loan Agreement and the other Loan Documents, the term "Loan
Agreement" shall mean the Loan Agreement as amended by and through the date of
this Seventh Amendment and as further amended and/or restated from time to time
hereafter.

     IN WITNESS WHEREOF, the parties hereto have executed this Seventh Amendment
to Loan and Security Agreement as a sealed instrument as of the date first above
written.

                              FACTORY CARD OUTLET OF AMERICA, LTD.



                              By: /s/  James D. Constantine
                                  -------------------------
                              Name:  James D. Constantine
                              Title: Senior Vice President and CFO


                              FOOTHILL CAPITAL CORPORATION, for itself and as
                              Agent for the Lenders



                              By: /s/  Thomas F. Morgan
                                  ---------------------
                              Name:  Thomas F. Morgan
                              Title: Vice President

                              PARAGON CAPITAL, LLC, as a Lender



                              By: /s/  Robert J. Shusterman
                                  --------------------------
                              Name:
                              Title:  Executive Vice President

                                       3