A business that has supplied banners for Labour Party conferences and events for six years has gone into liquidation, the victim of the high street banks' increasingly tight restrictions on lending to small companies.

Just as Gordon Brown was making the conference speech of his life in Manchester in September, Colorset, the company that supplied printed large-format graphics for the conference hall, was facing its own crossroads in talks with HSBC.

While Mr Brown's political standing has gone from strength to strength this autumn, Colorset, which listed Barclays, Boots, Gucci and the BBC among its clients, has had to put itself into liquidation, with the loss of 14 jobs. The company lays the blame for its demise squarely at the door of its bank, which it says threatened it with soaring interest rates and charges when it was at its most vulnerable, after losing an important contract.

The experience of Colorset, which is based in Bermondsey, southeast London, is being echoed across the country, according to business organisations, which fear a repetition of the collapse in the relationship between banks and small businesses that took place in the last recession.

Stephen Alambritis, head of public affairs for the Federation of Small Businesses, said: “This is the starkest evidence that the banks are hauling in their small business loan book and tightening their terms. We would urge them to be patient with good, viable businesses and not to act like vultures.”

Small businesses employ 13.5 million people and collectively produce annual turnover of £1.4 billion, according to the Department for Business, Enterprise & Regulatory Reform.

The Government has been appealing to high street banks to step up their lending to small firms, which was supposed to be one of the conditions of its £500 million bank bailout last month. New measures to help small businesses to access loans are set to be unveiled in the Pre-Budget Report.

Colorset was plunged into crisis when it lost a contract worth £220,000. After taking advice, the directors put the firm into a company voluntary arrangement (CVA) - a legally binding agreement with creditors, which allows a company to trade on - but for this it needed the support of its bank, HSBC, with which it had a ten-year relationship.

Despite a series of meetings with a “special situations” team, and even after the company had succeeded in lowering its overdraft from £145,000 to £35,000, the bank continued to turn the screw ever tighter, Tom Phelan, a director, said.

The three directors were told that they would have to put forward their houses as security. The bank was unable to confirm either the rate of interest it would offer or its charges. The conditions were so harsh that the company could not proceed with the CVA and had to go into liquidation.

Mr Phelan said: “We were told that our bank charges would increase ‘dramatically', but they couldn't tell us by how much. An undisclosed monthly management charge would be imposed and it became clear that the new consolidated loan would be at ‘considerably more' than the 6 per cent over base originally offered.”

Now, what remains of the firm is to be sold to a larger rival.

“I would suggest to HSBC that when they next employ people for these special situations departments charged with ‘helping' ailing businesses, could they look beyond these wide-boy, would-be gunslingers who have been watching far too much Alan Sugar,” Mr Phelan said.

A spokesman for HSBC said: “We have tried to help the company through what has undoubtedly been a very difficult trading period for them. It was the directors of the company who took the decision to approach the liquidators, not the bank.”

Explore Economics

• Pre-Budget Report 2008

• Budget 2008

• World Economic Forum

• The Times MPC

Times Recommends

• Gazprom brands Ukraine 'a barbarian' in gas row
• Services sector raises fears over UK jobless
• Retailers surge as profits survive sales plunge