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                                                                   EXHIBIT 10.18

                          EIGHTH AMENDMENT TO LOAN AND
                               SECURITY AGREEMENT

        THIS EIGHTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Amendment"),
dated as of December 15, 1999, 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 and that certain Seventh
Amendment to Loan and Security Agreement dated as of August 23, 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) eliminate the financial
covenant pertaining to EBITDA from the Loan Agreement, (ii) adjust the minimum
Adjusted Net Worth covenant to Twenty-Two Million Dollars ($22,000,000) and the
frequency at which such covenant is measured, (iii) decrease the time period
during which the advance rates under Section 2.1(a) of the Loan Agreement have
been temporarily increased, (iv) amend the negative covenant relating to
permitted indebtedness to reflect that all notes issued by Borrower payable to
Parent have been amended, restated and replaced with a new promissory note, and
(v) waive breach by Borrower of the financial covenant relating to EBITDA for
the trailing four fiscal quarter period ended October 31, 1999 and the financial
covenant relating to Adjusted Net Worth for the fiscal months of August, 1999
and September, 1999.

        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.

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        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:

        1. Temporary Increase in Advance Rate. Notwithstanding paragraph 1 of
the Seventh Amendment to the Loan Agreement, Borrower and Lender hereby agree
that (a) the temporary amendment to Section 2.1(a) of the Loan Agreement as
provided in such Seventh Amendment (whereby the advance rates set forth in
Section 2.1(a) of the Loan Agreement were temporarily increased) shall be of no
further force and effect as of January 1, 2000 and (b) on January 1, 2000,
Borrower shall immediately repay to Lender any outstanding amount of the
Revolving Loans in excess of the amount available under the lending formula
provided in Section 2.1(a) of the Loan Agreement in effect prior to such Seventh
Amendment.

        2. Amendments to Loan Agreement.

               (a) 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 Fifty Million Dollars ($50,000,000),
               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."

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                (b) 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 Twenty-Two Million Dollars ($22,000,000)."

               (c) Section 9.15 of the Loan Agreement (entitled "Minimum
        EBITDA") is hereby amended and restated in its entirety to read as
        follows:

                        "9.15 [Intentionally Omitted.]"

        3. Waiver by Lender of Compliance with Covenants in the Loan Agreement.
Borrower hereby acknowledges that (a) it was not in compliance with the
financial covenant relating to Adjusted Net Worth set forth in Section 9.14 of
the Loan Agreement for the fiscal months of August, 1999 and September, 1999 and
(b) as of the end of the fiscal quarter ended October 31, 1999, it was not in
compliance with the financial covenant relating to EBITDA set forth in Section
9.15 of the Loan Agreement, and that such non-compliance constitutes Events of
Default under the Loan Agreement. Lender hereby waives compliance by Borrower
with the financial covenant set forth in Section 9.14 of the Loan Agreement for
the fiscal months of August, 1999 and September, 1999, and shall not exercise
its rights and remedies under the Loan Agreement or applicable law in respect of
such Events of Default; provided, however, that Lender shall be free to exercise
all of its rights and remedies under the Loan Agreement in the event of
Borrower's non-compliance with Section 9.14 of the Loan Agreement after
September 26, 1999. Lender further hereby waives compliance by Borrower with the
financial covenant set forth in Section 9.15 of the Loan Agreement through the
end of the fiscal quarter ended October 31, 1999, and shall not exercise its
rights and remedies under the Loan Agreement or applicable law in respect of
such Event of Default. The foregoing waivers are not continuing waivers, and
Lender does not by this waiver amend the terms and provisions of the Loan
Agreement. Upon the occurrence of any Event of Default after the date hereof, or
in the event that Lender learns of any Event of Default which occurred prior to
the date hereof (other than a breach of the financial covenants set forth in
Sections 9.14 and 9.15 of the Loan Agreement for the periods described in this
paragraph), Lender shall be free to exercise any and all of its various rights
and remedies under the Loan Agreement.

        4. 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.

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

               (d) Amendment to Subordination Agreement. The First Amendment to
Amended and Restated Subordination Agreement duly executed by 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.

        5. 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.

        6. 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.

        7. 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.

        8. 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.

        9. 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.

        10. 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.

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

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

                                       By:_____________________________________
                                       Name:___________________________________
                                       Title:__________________________________

                                       CASTRO CONVERTIBLE
                                       CORPORATION,
                                       a New York corporation

                                       By:_____________________________________
                                       Name:___________________________________
                                       Title:__________________________________

                                       CONGRESS FINANCIAL
                                       CORPORATION (WESTERN),
                                       a California corporation

                                       By:_____________________________________
                                       Name:___________________________________
                                       Title:__________________________________

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                                 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 Eighth Amendment to Loan and Security Agreement and
acknowledges and confirms that its Guarantee dated November 25, 1996 (the
"Guarantee") in favor of Congress remains in full force and effect. 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:  December 15, 1999               KRAUSE'S FURNITURE, INC.,
                                        a Delaware corporation

                                        By:_____________________________________
                                        Name:___________________________________
                                        Title:__________________________________

                                       6<PAGE>   1
                                                                   EXHIBIT 10.19

[CONGRESS FINANCIAL CORPORATION LETTERHEAD]

December 22, 1999

Robert Burton
Executive Vice President and CFO
Krause's Custom Crafted Furniture, Corp.
200 N. Berry Street
Brea, CA 92821-3903

Re: Amendment to Eighth Amendment to Loan and Security Agreement dated 12/15/99

Dear Mr. Burton:

This letter serves as an amendment to the Eighth Amendment to the Loan and
Security Agreement dated 12/15/99, and provides that Krause's Custom Crafted
Furniture, Corp. and Congress Financial Corporation (Western) have agreed to
such amendment as follows:

1)   Section 1(a) of the Eighth Amendment to Loan and Security Agreement dated
     12/15/99 should read "the temporary amendment to Section 2.1(a) of the Loan
     Agreement as provided in such Seventh Amendment (whereby the advance rates
     set forth in Section 2.1(a) of the Loan Agreement were temporarily
     increased) shall be of no further force and effect as of January 11, 2000
     [replacing January 1, 2000]."

2)   Section 1(b) of Eighth Amendment to Loan and Security Agreement dated
     12/15/99 should read "on January 11, 2000 [replacing January 1, 2000],
     Borrower shall immediately repay any outstanding amount of the Revolving
     Loans in excess of the amount available under the lending formula provided
     in Section 2.1(a) of the Loan Agreement in effect prior to such Seventh
     Amendment."

<TABLE>
     <S>                                 <C>
     By: /s/ JEFFREY K. SCOTT            By: /s/ ROBERT A. BURTON
        ----------------------------        ------------------------------
        Jeffrey K. Scott                    Robert A. Burton
        Vice President                      Executive Vice President/CFO
        Congress Financial Corporation      Krause's Custom Crafted Furniture Corp.
        (Western)
</TABLE>
                             A First Union Company

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