The P2P market has taken off in earnest following the financial crisis.Reuters

The UK's peer-to-peer (P2P) lending market is on track to top £1bn this year, according to its membership body.

The Peer-to-Peer Finance Association (P2P FA) reports that the market hit £500bn in the first-half of 2014, as companies and individuals look to alternatives to mainstream bank finance. The volume has doubled over the first six months of the year.

P2P lending is a type of debt financing which allows companies and individuals to borrow and lend to and from one another without using a bank as an intermediary. P2P platform providers essentially replace banks as the middle-man. Platform providers claim to offer more flexible, favourable borrowing rates.

P2P lending has been on the rise since the financial crisis when businesses, SMEs in particular, began to find it tougher to borrow from the banking sector.

P2P FA's stats show that the majority of borrowers in the market are still consumers, but businesses are finding it an increasingly more viable capital raising tool for trade purposes than traditional channels too.

Bank of England statistics released this month showed that net bank lending to SMEs had fallen by £152m in May. While statistics also showed that more loan applications are being accepted, there is a large liquidity gap in the small business lending market.

In April, brokerage firm Liberum said the P2P market has the potential to expand to £45bn within the space of a decade, after the government proposed including tax-free Individual Savings Accounts (ISAs) be used with P2P investments.

The Financial Conduct Authority began its regulation of the industry in the same month – one of the main criticisms of the market to date was that it had been unregulated or at least under-regulated.

Alan Hughes, the chairman of the UK's largest P2P platform RateSetter, told IBTimes UK that he expects the market to continue to take a share from the banking sector.

"The latest figures released by the British Bankers' Association highlighted that lending to smaller businesses dropped yet again in June. The Competition and Markets Authority (CMA) also recently found that less than one in seven SMEs trust their bank to act in their best interests, and only a quarter feel supported by their bank," he said.

Investors, which can be institutional or individual, meanwhile, have been drawn to the P2P market because of the relatively high yields. Funding Circle, another P2P platform, offers an average return of 6.1%.

Funding Circle has also attracted investment from the banking sector itself. Santander has an agreement which sees it push some corporate lending requests to the P2P platform, while the British Business Bank - the government-owned lender which is expected to begin operations in earnest later this year - is to set aside £40m to invest in P2P channels.

Some critics suggest, however, that investment protection in the market isn't up to the same standard as it is in mainstream financing channels. There is, for instance, no Financial Services Compensation Scheme (FSCS) which could mean investors losing everything in the case of a default.

According to Hughes, though, the inclusion of FSCS can lead to additional costs being passed along to the customer.

"This has left UK savers losing money in below inflation accounts, partly due to the costs associated with the FSCS being passed on to them. Savers are now looking for new products that deliver returns that outweigh those offered by institutions having to pay into FSCS," he said.

As yet, the volume of P2P lending is a drop in the ocean. The UK market may well pass the £1bn this year, but UK banks HSBC and Barclays alone both hold more than £1tn in assets. Demand is rising, though, and for small businesses in particular the P2P market is continuing to appear more attractive.