I would start out with multiple unpainted pieces of cloth for each standard that you plan to make. You can then choose the best one to move forward to painting.
Fray and "distress" them with sandpaper, scissors, a dremel with a sandpaper bit etc. Make some holes with a nail etc.
Then come in with a cigarette lighter and just hover in and out around the edges of your tatters. Any small threads that have separated will be the first to ignite and melt. You may even get some charred brown leaching up into the rest of the banner which would look cool.
Paint your standards next as you don't want to waste time on this when the whole thing catches fire by accident.
Once you have it tattered and painted, I would use weathering powder instead of any wet mixture like a wash. Because it is basically fine dust, it's going to give it a fine color filter that you can grind in with your finger or just dust on gently with a fine brush and then blow off. Seal with a matte varnish.
I have never done this but that's what I would try if I was restricting it to cloth over paper.
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