The business model, or one business model that would work well for real indie film is the indie rock model. In both cases artists are creating work without a lot of capital & large corporations behind them for support, and are working on getting their work out to an interested audience.
The indie rock model is, I think, a better one for real indie filmmakers than Hollywood (large corporations with a lot of cash make movies & get them out to a lot of theaters & DVD retailers, etc.), or festival & indiewood (indie filmmakers take their movies to festivals in hopes of getting purchased for distribution by a Hollywood or Hollywood related company, or in some cases an actual independent/non-Hollywood distributor). The indie rock model is a more certain & enjoyable thing; make the art/entertainment work, find a place to exhibit it or perform it, make the home version of the work, sell it at shows, sell it through retailers that would carry it, sell it through mail order/w/ the help of websites, keep in touch with other artists and fans through self-published documents. It is doable, will not make you rich & famous overnight, but a career & a body of work can be created by applying the indie music model to filmmaking & distribution.
Jon Moritsugu has done it. Todd Verow has done it (though I am not sure if his inspiration was indie music).
For filmmakers who have not had a lot of time to observe the indie music scene closely, there's a wikipedia page w/ info. on how that world works. From the page:
"There are a number of cultural and philosophical traits which could be more useful in pinpointing what indie music is about than specific musical styles or commercial ownership. Indie artists are concerned more with self-expression than commercial considerations (though, again, this is a stance that is affected by many artists, including hugely commercially successful ones). A do-it-yourself sensibility, which originated with punk in the 1970s, is often associated with indie, with people in the scene being involved in bands, labels, nights and zines. Indie often has an internationalist outlook, which stems from a sense of solidarity with other fans, bands and labels in other countries who share one's particular sensibilities; small indie labels will often distribute records for similar labels from abroad, and indie bands will often go on self-funded tours of other cities and countries, where those in the local indie scenes will invariably help organize gigs and often provide accommodation and other support. In addition, there is also a strong sense of camaraderie that emerges from a selflessness among indie bands and often results in collaborations and joint tours."
Read more here.