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OK, here are some thoughts. You are being way too hard on yourself and on your friends. You say three of your seven man chapter are the workhorses. Well, that's about the same percentage for 100-man chapters too. You have a lot of men graduating, and it's understandable that graduating seniors are more focused on starting their careers than on routine fraternity duties. As the years pass they will remember their fraternity fondly and want to come back and reunite with their friends.
If it was me
1) Take charge, make a plan and sit down individually with each brothers to tell him what is happening and ask for his advice. You may find that they have good ideas to offer. Nothing will be accomplished if you yell at them, or address them as a group. Do it one-on-one. You'll be surprised at the effect this approach will have.
2) Look to your campus and see if there is an existing group that can be pledged together. For instance, a rugby club, or sailing club, a good independent intramural or some other manly outfit that would enjoy the additional advantages of being their own fraternity, especially one with a distinguished history.
3) Calm the alumni. Obviously they're proud and involved, and so their concern might tend toward panic. Again - and I cannot stress this too strongly - take charge. You don't need a title, just be able to articulate a vision and act confident. Don't ask permission; just do it and people will defer to you. Tell the alumni that things will be OK but you're going to need their help, maybe money, maybe being there as bodies for a rush function.
4) Go to sororities if you have them. Tell them you're looking for a few good men and ask for referrals and recommendations.
5) Don't sell yourselves to rushees as a 7-man small fraternity. Sell yourselves as a 700-man fraternity with a rich history and unique tradition. The best men want to be part of something strong and attractive.
6) When talking to your undergraduate members, stress that confidence is the most attractive Human attribute in rush. Never apologize for being small, and never use your numbers as crutch, ie. "We're tiny so we have brotherhood." The fact is that to rushees, all fraternities have Brotherhood, just like every automobile has wheels. But some automobiles are Mercedes and some are Kias. Your 7-man fraternity with 700 alumni could be an exotic Juaguar. When they ask how many members you have, say "700 from the beginning, and our alumni are proud and active. We like to maintain 25-35 undergraduates at any one time." Do not say, "We only have 7 guys and they're graduating so please join our fraternity so we won't go under."
Remember: take charge / have a plan / outward display confidence / "rush" the Brothers one-on-one / have a goal in mind.
PM me if I can help.
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